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San Juan, Puerto Rico • Gov. Alejandro Garcia Padilla announced that Puerto Rico's government will not make a $370 million bond payment due Monday after a failure to negotiate a legal or political solution to the U.S. territory's public debt crisis.
Garcia said Sunday that he had issued an executive order suspending payments on debt owed by the island's Government Development Bank, a default that will likely prompt lawsuits from creditors and could hurt future access to capital markets.
Island officials spent the weekend trying to negotiate a settlement that would have avoided the default but apparently came up short. The development comes as Congress has so far been unable to pass a debt-restructuring bill for Puerto Rico.
Garcia said Puerto Rico's government could not make the payment without sacrificing basic necessities for the island's 3.5 million residents, including keeping schools and public hospitals open.
"We will continue working to try to reach a consensual solution with our creditors. That is one of our commitments. But what we will never do is put the lives and safety of our people in danger." he said
The governor had been warning since last year that the island's overall public debt of more than $70 billion is not payable.
Puerto Rico has been suffering through more than a decade of economic decline since Congress phased out tax cuts that had made the island a center for pharmaceutical and medical-equipment manufacturing. Garcia's predecessors and the island legislature borrowed heavily to cover over budget deficits, causing a debt spiral that has already prompted several smaller defaults.
Creditors have accused the government of exaggerating the crisis to avoid upcoming payments such as $780 million due July 1, which includes general obligation bonds that are guaranteed by the constitution.
Economists have warned that a default of this magnitude could cause Puerto Rico to lose access to capital markets and make the situation worse.
Garcia lashed out at Congress for failing to pass a bill that would create a control board to help manage the island's $70 billion debt and to oversee some debt restructuring. He said it has been held up by internal partisan and ideological divisions" in the House of Representatives.
"We can't wait longer," he said. "We need this restructuring mechanism now."