Puerto Rico governor says island can’t pay $72 billion debt

Alejandro Garcia Padilla admits Puerto Rico close to defaulting on its debts, urges US authorities to grant the island the ability to file for bankruptcy. 

Alejandro Garcia Padilla
Alejandro Garcia Padilla

Puerto Rico’s governor Alejandro Garcia Padilla has said that the US island cannot pay back its $72 billion debt and is close to defaulting ahead of emergency talks with legislators.

In a TV address on Monday evening, Garcia Padilla said that he would seek a moratorium on repayments and form a team to restructure the country’s public debts. He urged the central authorities to grant Puerto Rico the ability to file for bankruptcy, thus enabling a postponement of its debt payments for several years.

"Even if we increase revenues and cut costs, the magnitude of the problem is such that we would not resolve anything given the weight of the debt we're dragging," he warned. "The only way we'll get out of this hole is to join forces and agree, including bondholders, to assume some of the sacrifices."

Legislators have to approve a $9.8 billion budget on Tuesday, which includes $674 million in cuts and sets aside $1.5 billion to help pay off the debt.

Although Puerto Rico is a US territory whose residents are granted US citizenship, it does not have the same status as other states and municipalities, meaning that it is unable to file for bankruptcy, as the US city of Detroit did in 2013, if it cannot raise enough money to repay its debts.

The US government has ruled out a federal bailout for the US island, according to White House spokesman Josh Earnest. However, Reuters reported on Monday that the White House said it would urge Congress to consider a change in the law that would allow Puerto Rico to declare bankruptcy.

The island has been in a recession since 2006, and Garcia Padilla had earlier admitted during an interview with the New York Times that it was close to an economic "death spiral”. A report released by international economists hours before Garcia Padilla’s address bluntly said that the island’s debts were unsustainable and needed to be restructured.