Puerto Rico governor Alejandro Garcia-Padilla addressed the Puerto Rican natives on Sunday evening to announce that the island’s financial crisis has made it impossible to continue payments on outstanding debts from bonds loaned many decades back.
Puerto Rico approved a moratorium resolution to stop payments on Monday morning, which will default the country on $422 millions in bonds, Garcia-Padilla said.
To make matters worse, another outstanding debt of about $700 millions could also be defaulted by July 1st, according to Treasury Secretary Juan Zaragoza.
Puerto Rico governor declares island will miss debt deadline https://t.co/aTAKWb0fuM pic.twitter.com/DrU3ajKiha
— NBC News (@NBCNews) May 1, 2016
During a televised speech, Garcia-Padilla called on the U.S. Congress to seek immediate action to avoid a humanitarian crisis.
While Congress is in recess until May 9, it had previously been trying to figure out how to deal with the financial crisis of Puerto Rico. Lawmakers were drafting a legislation for a financial control board, but according to Garcia-Padilla, that legislation would return Puerto Rico to the colonial control Congress had been imposing since 1898.
Puerto Rico has debt service due on 7 classes of debt on May 1. PFC has defaulted since last Aug. Now GDB #muniland pic.twitter.com/OgW8VidWwl
— Cate Long (@cate_long) May 1, 2016
Garcia-Padilla wants Congress to give Puerto Rico a legal framework to restructure its debts. Congress has refused to serve Puerto Rico with an extension of the Chapter 9 Bankruptcy laws, since the island is a commonwealth and territory of the U.S., but not a state. Chapter 9 was removed from Puerto Rico since the mid 1980s.
“The decision not to pay has been a very difficult one, one that frankly I would rather not take… Faced with the lack of liquidity to meet both the needs of our creditors and to provide services to our people, I had to choose… We would have preferred to have had a legal framework to restructure our debts in an orderly manner.” Governor Garcia-Padilla
If Puerto Rico defaults on its loans, are some bonds in your investments going to be rendered worthless? https://t.co/eTFdONlexG
— Marketplace (@Marketplace) May 1, 2016
Puerto Rico has a $71 billion dollar bond debt and an unemployment rate of almost 13%. Middle class professionals are choosing to migrate to the U.S. mainland in search of new opportunities. Even doctors are leaving at a rate of one per day while basic services are declining due to payments being limited and sometimes missed due to lack of funding available, NBC reported.