SAN JUAN, (Reuters) – Puerto Rico authorized suspension of payments on its general obligation debt yesterday just minutes after U.S. President Barack Obama signed a law creating a federal oversight board with authority to negotiate the restructuring of the island’s $70 billion in debt.
The executive order issued by Puerto Rico’s governor, Alejandro Garcia Padilla, comes just one day before the U.S. territory was due to make $1.9 billion worth of debt payments on July 1, including some $780 million in constitutionally-backed, general obligation bonds.
It remains to be seen whether Puerto Rico will pay part of the GO debt or any of the non-GO debt.
“Under these circumstances, these executive orders protect the limited resources available to the agencies listed in these orders and prevents that these can be seized by creditors, leaving Puerto Ricans without basic services,” Garcia Padilla’s administration said in a statement. The flurry of activity represents the nadir of a decade-long struggle by Puerto Rico, home to 3.5 million Americans, to stave off economic collapse, reverse a 45 percent poverty rate and stem rampant emigration that exacerbates the economy’s decline.
Garcia Padilla authorized the suspension of general obligation payments under a previously enacted local debt moratorium law that has already been challenged by a creditor lawsuit filed in U.S. District Court in Manhattan.
