WASHINGTON –While Puerto Rico is at a crossroads, it must file for restructuring as soon as possible and work with the federal government to help resolve the commonwealth's fiscal crisis, said outgoing Puerto Rico Gov. Alejandro García Padilla.
Puerto Rico is currently struggling with roughly $70 billion in debt and at least $46 billion in unfunded pension liabilities. The path to fix its current crisis lies with the federal PROMESA law that passed in late June, García Padilla said in a speech on the commonwealth's economy on Tuesday.
PROMESA paired fiscal oversight with restructuring by creating a seven-member oversight board for Puerto Rico that is already examining the commonwealth's fiscal plan. The board can file debt restructuring petitions on behalf of the island and its entities in federal district court if voluntary negotiations with creditors fail.
García Padilla described the commonwealth's crossroads, saying Puerto Rico must "defend the level of sovereignty attained by the people of Puerto Rico" to govern their local affairs, while, at the same time, use tools to restructure the island's debt so that it can continue to provide essential services to the people that live on the island and boost the economy.
"No crisis should go to waste," he said. "This can be the beginning of long-lasting, sustainable democratic and economic development for Puerto Ricans."
He added that an important part of that solution will hinge on the commonwealth filing for restructuring "now."
"The chaos of costly, protracted litigation that would ensue if the commonwealth does not seek restructuring can easily be avoided with swift, decisive action within the next two months," García Padilla said, adding, "That is, before the expiration of the stay on litigation" that PROMESA put in place until Feb. 15.
"At that point, the commonwealth will face a cash deficit of over $3 billion that would likely force a government shutdown," he said. "There should be no excuse to force Puerto Rico to depression economics."
García Padilla, who will cede the governorship to Ricardo Rossell- after the new year, said that if the PROMESA oversight board approves his fiscal plan's compliance with PROMESA and issues a certification for restructuring, Puerto Rico can seek the protections of an orderly bankruptcy proceeding.
"If the new administration, however, follows austerity, Puerto Rico will soon fall into an unstoppable death spiral," García Padilla said.
The oversight board has said it does not believe the governor's fiscal plan has the needed level of austerity to move forward.
García Padilla also said the next steps for the commonwealth will be to rely on partnerships with the U.S. government to, among other things, give Puerto Rico equal treatment under Medicare and Medicaid programs. Those political solutions "will demand an unparalleled level of 'creative statesmanship,'" he said.
