SAN JUAN, Puerto Rico — Puerto Rico’s governor said Monday night he will form a financial team to negotiate with bondholders on delaying debt payments and then restructuring $72 billion in public debt that he says the U.S. island can’t repay.
Gov. Alejandro Garcia Padilla made the announcement hours after international economists released a gloomy report on Puerto Rico’s economy in another jolt to the recession-gripped island as well as a world financial system trying to avoid a collapse in Greece’s finances.
Garcia said he would seek a repayment moratorium of several years but did not provide specifics.
“Even if we increase revenues and cut costs, the magnitude of the problem is such that we would not resolve anything given the weight of the debt we’re dragging,” he said. “The only way we’ll get out of this hole is to join forces and agree, including bondholders, to assume some of the sacrifices.”
The team has until Aug. 30 to develop a plan that would require legislative approval.
Legislators are debating a $9.8 billion government budget that calls for $674 million in cuts and sets aside $1.5 billion to help pay down the debt. The budget has to be approved by Tuesday.
Puerto Rico’s bonds were popular with U.S. mutual funds because they are triple-tax exempt, but hedge funds and distressed-debt buyers began stepping in to buy up debt as the island’s economy worsened and its credit rating dropped.
The White House threw cold water Monday on the notion of bailing out Puerto Rico from its financial crisis, instead urging Congress to consider changing the law to permit the island’s government and public agencies to declare bankruptcy.
