Puerto Rico’s financial crisis escalated early Wednesday morning as Gov.
A Republican proposal in Congress would create a panel that would have close to total control of the territory's economy.
Puerto Rico’s financial crisis escalated early Wednesday morning as Gov. Alejandro Garcia Padilla won an emergency declaration from both houses of the Puerto Rican legislature authorizing him to suspend all payment on $72 billion in public debt.
The sudden move stunned both Washington and Wall Street, where leaders keep ignoring Puerto Rico’s pleas to be allowed to restructure its debts.
The governor’s action came after hedge funds holding Puerto Rico bonds sued Monday in federal district court in San Juan to freeze assets of the island’s government development bank.
With his government almost out of cash and facing huge debt payments of $422 million on May 1 and nearly $2 billion on July 1, Garcia Padilla is now forcing everyone’s hand.
Around 2:30 a.m. Tuesday, he won approval from Puerto Rico’s Senate for a debt moratorium until next January.
The bill authorizes the governor to “protect the health, security and public welfare” of island residents by using government funds first and foremost for public services.
Puerto Rico Gov. Alejandro Garcia Padilla is forcing the hand of Congress and Wall Street debt holders by threatening to miss bond payments.
The proposal then moved to the lower house, where a debate ensued for much of day, with financial industry lobbyists feverishly pressing legislators to oppose it.
Around 1 a.m. Wednesday, members of Garcia Padilla’s ruling Popular Democratic Party passed their own version of the bill by a narrow one-vote majority.
It authorizes the governor to suspend any debt payment on a case-by-case basis and also to appoint a new chief financial officer.
The governor was expected to immediately sign the law.
This sudden act of defiance should come as no surprise.
Late last year, Republicans in Congress refused to include a rescue package for Puerto Rico in a year-end federal spending bill. House Speaker Paul Ryan failed to pass a bill by March 31 to address the problem as he promised.