Puerto Rico Government Could Collapse If No Steps Taken

By The Associated Press
The Associated Press
The Associated Press
January 17, 2017 Updated: January 17, 2017

SAN JUAN, Puerto Rico—The administration of Puerto Rico’s new governor warned on Tuesday that the government of the U.S. territory could shut down if dramatic measures to offset its financial crisis aren’t taken soon.

The warning came as officials released new data provided by the previous governor during the transition process that they say shows the government’s revenue problems after the island’s decade-long economic slump are even worse than previously believed.

“If we don’t make a dramatic adjustment, there could be a total collapse in upcoming months,” said Elias Sanchez, the governor’s representative to a federal control board created last year to oversee Puerto Rico’s finances.

He told reporters that the extent of the fiscal crisis is still unknown, in part because of a lack of communication among public agencies. Puerto Rico is seeking to restructure a public debt load of nearly $70 billion, and the island has defaulted on millions of dollars’ worth of bond payments since August, angering creditors who have filed multiple lawsuits.

The report released Tuesday reported deficits of $230 million for the island’s Education Department and $45 million for the police department and said the Highway Authority owes suppliers more than $500 million.

The report also said Puerto Rico’s largest public university has $91 million deposited in the Government Development Bank that it cannot access because of a debt moratorium. Officials say the bank, which oversees the island’s debt transactions, turned over its routing number in April and has not issued any checks since. All of the bank’s deposits have been moved to private banks.

A bronze statue of San Juan Bautista stands in front of Puerto Rico's capitol flanked by U.S. and Puerto Rican flags, in San Juan, on July 29, 2015. (AP Photo/Ricardo Arduengo)
A bronze statue of San Juan Bautista stands in front of Puerto Rico’s capitol flanked by U.S. and Puerto Rican flags, in San Juan, on July 29, 2015. (AP Photo/Ricardo Arduengo)

“The crisis is real and more severe than people think,” Sanchez said.

Puerto Rico has a multimillion-dollar bond payment due in February, but Sanchez said it is too early to say whether it will be made. He said the government will talk with the federal control board in the upcoming days about that payment.

“We’re going to see what kind of agreement we can reach,” he said.

A group representing interests who hold $17 billion in outstanding bonds issued by Puerto Rico’s Sales Tax Financing Corporation said it supports economic growth but added that any potential relief needs to respect its seniority and property rights.

“We continue to try to show constructive leadership though our willingness to provide relief to the government via liquidity or voluntary reductions,” the group said in a statement emailed to The Associated Press. Some of those represented by the COFINA Senior Bondholders Group are individuals and retirees.

Rossello’s administration already has requested an extension on a deadline to turn in a revised fiscal plan that the control board is supposed to approve by Jan. 31. Officials also have asked for an extension on a moratorium that temporarily protects Puerto Rico from creditor lawsuits. The board has not responded publicly to those requests.

Rossello’s administration has pledged to restructure the government to reduce costs as well as reform the island’s tax and retirement systems. The governor already signed several executive orders aimed at turning around the government’s financial crisis, including ordering agencies to reduce their budgets and contracts for professional services by 10 percent.

He also has submitted a labor reform bill that seeks to cut the size of a mandatory Christmas bonus and the required number of vacation and sick days granted to workers. Puerto Rico’s Senate is debating the bill amid a growing number of protests.

The Associated Press
The Associated Press