Puerto Rico's Gov. Alejandro García Padilla told his island's citizens in a televised speech Monday that it is time to confront the commonwealth's fiscal problems, for all, including bondholders, and to make sacrifices or risk losing control of their own destiny.
Through executive order, García Padilla created a Working Group for the Economic Recovery of Puerto Rico made up of five people to begin work on restructuring Puerto Rico's debt. He said the goal would be to negotiate a moratorium with bondholders to postpone debt payments so that investments can be made in the commonwealth.
But he also was defiant, rejecting a proposal to pay some workers less than minimum wage as recommended in a sobering report issued Monday that was written by experts who analyzed Puerto Rico's financial situation.
"We will not permit the heavy weight of inherited debt to bring us to our knees," García Padilla said. "We cannot allow them to make us choose between paying police, teachers and nurses or to pay the debt ... We must all share the responsibility and the sacrifice so then we can share in the benefits of a growing Puerto Rican economy."
Puerto Rico, a U.S. commonwealth whose citizens also have U.S. citizenship, faces more than $70 billion in debt that García Padilla declared "unpayable." Unlike Detroit, New York and other U.S. municipalities, Puerto Rico cannot file for bankruptcy to restructure debt payments, a prohibition that García Padilla criticized in his speech.
"If we don't take responsibility today, we risk having no solutions at our disposal, or worse losing control of these (solutions), giving the power to decide to others. We must address, together, the destiny of Puerto Rico," García Padilla said from his desk adorned with family photos facing the camera and stationed in front the flags of Puerto Rico and the U.S.
Deadlines for payment of the commonwealth's debts are coming up within a matter of days. The country has been trying to negotiate for debt repayments but has been largely rebuffed by Congress in its attempt to get a change to bankruptcy laws so it could restructure its debt in a coordinated way, rather than negotiating with debtors of various entities such as the power company, water system and transportation agency separately. Opponents have called granting that authority to Puerto Rico a bailout, but the White House said Monday no bailout is planned.
A report released Monday by the Puerto Rico Government Development Bank included allowing the bankruptcy filing among its recommendations.
"This is the moment we call for concerted action from Washington, in a single voice, now. Action so they will approve changes to Chapter 9 (of the U.S. bankruptcy code) so Puerto Rico has the same protection as other jurisdictions," he said.
Related: Focus on Puerto Rico, Washington, as Island Tries to Avert Crisis
He also called for parity in Medicare payments to Puerto Rican doctors, so it can have the tools to attract manufacturing investment to the island and it can be exempted from the Jones Act, a U.S. law requiring shipping to and from U.S. ports to be done with U.S. crews and vessels. Those issues must be addressed by Congress which is on recess through July 7.
García Padilla said changes will be made to basic government operations to better use government resources and he tasked the newly-created working group with helping to come up with a legislative plan by Aug. 30 that would include:
- Establishing a five-year fiscal plan
- Proposing cuts in spending, including cuts in services
- Promoting alliances with private businesses for delivery of services that are now in the public sector
- Creating a non-partisan Fiscal Council to guarantee the continuation and completion of commitments made in the restructuring process.
Legislators are currently 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 Associated Press reported. The budget has to be approved by Tuesday.
García Padilla welcomed creditors who act in good faith and share the sacrifice, but warned those who exploit the situation for financial or political gain that "Puerto Rico is united against them."
The mutual fund analysis firm Morningstar estimates 377 out of 1,884 bond funds in the U.S. hold some Puerto Rican debt, with a face value of $11.33 billion, the AP reported. Four of the five biggest funds holding Puerto Rican debt are with the fund manager Oppenheimer, according to Morningstar.