Puerto Rico Gov. Alejandro García Padilla said if bondholders don't agree to new terms on their debt, he will choose to pay for the needs of the people before paying the commonwealth's creditors.
The governor said Tuesday that he has called for negotiations with bondholders, proposed a five year plan, and is working to assure future responsible Puerto Rico policies, according to a government transcript. Referring to the bondholders, he said, "If you don't negotiate and I am obligated to choose between the creditors and the Puerto Rican people, I'm going to pay the Puerto Ricans."
The government has said it is running low on money. There have been locally-based news stories about talk of a partial government closure or a cut of Christmas bonuses for government workers to deal with the financial crisis.
"We are evaluating all of the mechanisms, like we said before, to avoid reducing the workday, government shutdown or stopping payments on the debt," García Padilla said, according to the government. "What [Government Development Bank for Puerto Rico President] Melba Acosta, [Secretary of the Treasury Juan] Zaragoza, and [Office of Management and Budget Director] Luis Cruz all said is what the numbers say. If we don't come up with extraordinary mechanisms, uncommon and abnormal in the government, those things, like partial shutdown, workday reduction, etcetera can happen."
If the governor chose to allow a default and use government's revenues for other purposes, it may put him at odds with Section 8 of Puerto Rico's constitution, which states: "In case the available revenues including surplus for any fiscal year are insufficient to meet the appropriations made for that year, interest on the public debt and amortization thereof shall first be paid, and other disbursements shall thereafter be made in accordance with the order of priorities established by law."
Acosta seemed to present a different approach to the government's impending debt payments. In testimony Tuesday to a joint hearing of two Puerto Rico House of Representatives committees, she said the payment of debts on Dec. 1 and Jan. 1 have the highest priority for payment, according to the El Nuevo Día news web site.
Puerto Rico's GDB owes $354 million in debt on Dec. 1. According to Moody's Investors Service, $273 million of this sum has a constitutional guarantee and $81 million does not. Puerto Rico also owes $330 million in general obligation debt Jan. 1.
Acosta told the legislators that the government is likely to make the Dec. 1 payment, according to El Nuevo Día. The debt is insured, she said. She said that the government was in talks to make the payment but did not further explain the talks.
On Wednesday afternoon, Moody's Investors Service released a short report saying it thought a default on at least some of the Dec. 1 debt service was likely.
At the hearing House President Jaime Perell- Borrás said that the government should prioritize remaining fully open and paying Christmas bonuses and delayed tax refunds and supplier bills before the bond debt. Perell- Borras is in the same party as the governor, the Popular Democratic Party.
Not making the December and January bond payments would lead to further major complications, Acosta said, according to El Nuevo Día.
Acosta also said the government would present a proposal for restructuring the debt to the bondholders on either Nov. 18 or Nov. 19, according to El Nuevo Día.
In other Puerto Rico news, Puerto Rico Senate President Eduardo Bhatia Gautier said it will be hard to pass the energy bill presented on Nov. 4 to restructure the island's energy sector by the current deadline of the end of Thursday. If it is not approved by then, the governor will ask for an extraordinary legislative session to handle the matter, he said.
The extraordinary session could be either in November or in December.
According to a Senate source, earlier this week Ram-n Luis Nieves Péres, chairman of the Senate Energy Affairs and Water Resources Committee, said the bill was complex and that there was not enough time to consider it by the end of Thursday. The bondholders have a signed agreement with the Puerto Rico Electric Power Authority that the legislation be passed by Nov. 20 or they will be free to walk away from the agreement. Nieves Péres said bondholders had extended their deadlines many times in the past.
Members of the House committee considering the bill have also said they need time beyond the end of Thursday to consider the bill, the Senate source said.
