Puerto Rico, in the midst of measures to improve its finances including a pension overhaul, denied speculation that a restructuring of its debt is under consideration.
"Puerto Rico will take every step necessary to continue honoring its obligations," Puerto Rico Secretary of the Treasury Melba Acosta Febo and Government Development Bank interim president José Pagán Beauchamp said in a statement. "We made significant progress in implementing our fiscal and economic development plans in 2013, and are determined to continue that progress in 2014."
The statement came after the Financial Times reported Wednesday that some creditors of Puerto Rico were planning to meet in New York City to discuss possible restructuring of the commonwealth's debt with "restructuring specialists." The specialists told The Financial Times that a restructuring "appears increasingly likely."
The Puerto Rico officials responded: "We believe it is not unusual, as part of the normal investment process, for private investors to meet with advisors to discuss a range of issues, and we understand that meetings of this nature occur periodically. We did not call for, were not invited to and are not participating in this meeting."
Puerto Rico and the possibility of a downgrade of its debt were the subject of a panel discussion Wednesday in New York, sponsored by Global Interdependence Center.
Robert Kurtter, managing director for U.S. state and regional ratings at Moody's Investors Service, said Puerto Rico's government had made good decisions since it came to power in early January 2013, making moves that "surprised" the Moody's team.
However, it remains unclear if these actions are enough to avoid a Moody's downgrade, Kurtter said. Both Moody's Investors Service and Fitch Ratings have put the barely investment grade GO ratings on review for a downgrade.Moody's is now more than a month into what is normally a three month review of Puerto Rico.
It will be hard for the Puerto Rico government to return to a structurally balanced operating budget just with tax increases and spending cuts, without a turnaround in the economy, Kurtter said.
The federal government is likely to do little for Puerto Rico is next few months that it isn't already doing, Capital Alpha Partners senior vice president Joseph Engelhard said during the panel discussion.
Engelhard said that the federal government was already taking two of the three possible actions to assist the commonwealth over the short term..
The federal government is allowing Puerto Rico to place an excise tax on manufacturing. The manufacturers use it as a tax credit. This brings in about $175 million a year for Puerto Rico, Engelhard said.
Engelhard said the Internal Revenue Service could challenge the tax but will probably not do so in the near future. He suggested this was due to the federal government's wishes to promote fiscal stability in Puerto Rico.
Second, the White House task force on Puerto Rico is working to maximize Puerto Rico's access to federal spending.
The one thing that the federal government is not doing that it may do in the near future is renew the rum tax for Puerto Rico. A $10.50 tax per gallon tax is ongoing. An additional $2.75 per gallon tax expired at the end of 2013. Last year it generated $450 million, Engelhard said. Puerto Rico kept about half of this and gave half to rum manufacturers on the island.
The federal government is pushing itself to the edge of what it can do right now, so people cannot expect it to do much more, Engelhard said after the panel.
If one of the ratings agencies would downgrade the island's general obligation debt to a speculative grade, if the island were to default or if some other serious development occurred, parts of the federal government might consider taking additional measures for Puerto Rico, Engelhard said. For example, Congress might amend the Jones Act, which reduces the amount of cargo shipping that stops in Puerto Rico.
Engelhard noted that the United States guaranteed a debt offering by the Middle East nation Jordan last year. Congress passed the guarantee as part of a larger piece of legislation. Congress would have to approve any possible guarantee of Puerto Rico loans.
In other Puerto Rico news, the Puerto Rico Supreme Court late Tuesday put a stay on the implementation of the recently adopted reforms of the Puerto Rico teacher and judicial pension plans.
"I am confident that the court will uphold this law as they did the [reform of the] public employee pension fund," said Puerto Rico Gov. Alejandro García Padilla, responding to the court's move.
