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Puerto Rico set to default on debt

Do Not UseDo Not Use 1/05/2016
The Puerto Rican flag flies near the Capitol building © Getty Images The Puerto Rican flag flies near the Capitol building

Puerto Rico has halted a $422m (£289m) debt payment due on Monday after talks to ease the US territory's crisis ended without a deal.

Governor Alejandro Garcia Padilla said in a televised speech he had issued an executive order suspending payments.

He described it as a "painful decision", but had been warning since last year that the island's public debt of more than $70bn was unpayable.

The US Congress has tried without success to agree a solution.

"Let me be very clear, this was a painful decision," Mr Garcia said in a speech. "We would have preferred to have had a legal framework to restructure our debts in an orderly manner."

He acknowledged before the weekend that if the payment was not made, it was likely to spark legal action from creditors. A further debt payment of $1.9bn is due in July.

'Continue to suffer'

Puerto Rico officials have held talks with groups holding some of its $4bn in bonds to try to restructure the debt.

Some creditors have argued that the territory has exaggerated its crisis and that economic reforms would improve the island's finances.

"The government has known the [Government Development Bank] was a ticking time-bomb and yet nothing constructive was done to forestall a default," Arturo Porzecanski, economist and sovereign debt expert at American University in Washington, told the Reuters news agency.

He added: "The approach is symptomatic of all that is wrong with how Puerto Rico has dealt with its deteriorating financial situation."

Congress is in recess until the week of 9 May. "If Congress fails to authorise a mechanism to restructure our debt, the 3.5 million American citizens who live in Puerto Rico will continue to suffer," Mr Garcia Padilla said.

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