Officials of the U.S. territory said that it will not be able to pay two of the 13 obligations to its bondholders due on Monday, CNBC reports, leaving the Puerto Rico Infrastructure Financing Authority and the Puerto Rico Public Finance Corporation a combined total of US$37.3 million out of pocket.
The other 11 bondholders will be paid according to the general obligation debt requirements, using funds in part scavenged from the Highways & Transportation Authority, the Infrastructure Financing Authority and the Convention Center District Authority bonds.
The resulting US$163 million clawed back came after an unprecedented executive order made by Puerto Rico Governor Alejandro Garcia Padilla to redirect funds destined for tax-supported bonds to paying back debt obligations.
When no further payments were made into the trusts since the “clawback” executive order was issued, Puerto Rican officials were compelled to announce the default.
The default could lead to lawsuits from debtors. When asked about a shutdown of key government services, Garcia Padilla told reporters at a press conference, "We have to do all we can to avoid that situation," Reuters reports.
White House officials responded to the announcement of the default saying that it demonstrated the extent of Puerto Rico’s debt crisis, and urged the Congress to grant an aid package.
"This increasingly urgent situation demands swift Congressional action to give Puerto Rico access to an orderly restructuring regime paired with independent oversight," a Treasury Department spokesman said in a statement.
"Congressional leaders have committed to act, and the administration remains committed to working with Congress to address this crisis and put Puerto Rico on a sustainable path forward that protects the 3.5 million Americans who live in the commonwealth."
In August, Puerto Rico went into default for the first time in its history, and was described by Governor Padilla as a “death spiral.”
The default came soon after the island's Government Development Bank announced that it was only able to make a partial payment on its US$72 billion debt.
Because Puerto Rico is a U.S. territory, it does not have the right that U.S. states have to renegotiate its debt. Instead it must negotiate with each individual bondholder.
Bondholders lobbied against granting the island bankruptcy rights, claiming that debt restructuring would discourage reform and, importantly, decrease payments to bondholders.
IN DEPTH: Puerto Rico’s Struggle Against Debt
About one in five U.S. bond mutual funds own Puerto Rican debt, according to Morningstar, and the territory's bond default in August was the largest in U.S. history. Much of its debt has been bought by hedge funds.
The crisis comes after years of economic turmoil in the island, produced mainly by the 2007-2010 recession and housing crisis that have affected the United States, however this situation will hurt directly to the island's residents, since the debt is mostly owned by residents through credit unions.
Many Puerto Ricans have abandoned the island in search of better opportunities and stability in the U.S. mainland, as the island struggles with the high rates of unemployment and inflation.
This content was originally published by teleSUR at the following address: