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Without the help it has requested, Puerto Rico is going broke.
That’s according to newly-released and unaudited financial documents for the U.S. commonwealth for fiscal year 2014. Last year, Puerto Rican Gov. Alejandro Garcia Padilla acknowledged the island is not able to service its $70 billion debt load. Now, there is “substantial doubt” that San Juan’s government can operate in the long-term.
The documents also said Puerto Rico’s Government Development Bank is at danger of missing upcoming debt payments. The island has a $49.2 billion deficit as of June 30, 2014 — or $2.5 billion more than in 2013 — so cash isn’t available to pay down its loans.
Ahead of the documents’ release late Tuesday, the White House said Puerto Rican labor leaders and business executives met with senior Obama administration officials, including Treasury Secretary Jacob Lew, and Health and Human Services Secretary Sylvia Burwell. Lew acknowledged the extent of the crisis in the commonwealth, and administration officials repeated President Barack Obama’s demand for Congress to give Puerto Rico a version of Chapter 9 bankruptcy protection. That would let the island create a process for its creditors to recoup some of the owed funding. But Obama’s push has stalled in both the House and the Senate.
So have talks with Wall Street creditors, who want Puerto Rico’s government to be more transparent about the state of its finances. Since the new documents were long delayed and didn’t contain audited financial information for the Government Development Bank, nor for the government’s largest pension fund, creditors will all but certainly remain on edge.
Puerto Rico’s bonds are popular with municipal money managers because they are tax-free. The island has asked for a 45 percent haircut on their loans, which would allow it to pay far less than what it borrowed. So far, the creditors have refused.
Growing its way back to financial health is near impossible. Puerto Rico has a 45 percent poverty rate, and its tax base has shrunk. Its population, meanwhile, has left for the United States in droves, shrinking by about 48,000 between 2010 to 2013 — more than during the 1980s and 1990s combined.
In a statement accompanying the release of the document, Padilla once again demanded that Congress to come to San Juan’s rescue, and accused lawmakers of seeking “an excuse for inaction.” If that continues, Puerto Rico will have few — if any — options to keep it from running out of cash.
Photo Credit: Spencer Platt/Getty Images