GLOBAL ECONOMY

Puerto Rico's governor says he explored possibility of declaring island bankrupt

  • People gather in front of the Puerto Rico’s Capitol building to protest against Gov. Alejandro Garcia Padilla's budget proposal for the next fiscal year in San Juan, Thursday, April 30, 2015. Legislators struck down a key part of a plan to overhaul the island's tax system early Thursday, raising concerns about the U.S. territory's economic future and its ability to pay off a heavy public debt. (AP Photo/Ricardo Arduengo)

    People gather in front of the Puerto Rico’s Capitol building to protest against Gov. Alejandro Garcia Padilla's budget proposal for the next fiscal year in San Juan, Thursday, April 30, 2015. Legislators struck down a key part of a plan to overhaul the island's tax system early Thursday, raising concerns about the U.S. territory's economic future and its ability to pay off a heavy public debt. (AP Photo/Ricardo Arduengo)  ((AP Photo/Ricardo Arduengo))

  • Puerto Rico Gov. Alejandro Garcia Padilla delivers his budget address on April 30, 2015.

    Puerto Rico Gov. Alejandro Garcia Padilla delivers his budget address on April 30, 2015.

Puerto Rico's governor confirmed Wednesday that his administration recently pursued a proposal to request that the U.S. Congress allow the island's heavily indebted government to declare bankruptcy amid an economic crisis.

Gov. Alejandro García Padilla's public acknowledgement of the proposal comes as the U.S. territory struggles with $72 billion in public debt amid a nearly decade-long economic slump.

García said he has since rejected the proposal in favor of the current push to get rules that would allow only Puerto Rico's public agencies to file for bankruptcy under Chapter 9. A U.S. House committee is studying the issue amid growing concerns about the government's ability to repay its debt.

Declaring complete bankruptcy for the whole island government would not have been good for Puerto Rico, García said.

"It's not something that's being considered right now," he said. "It would have been less than impossible to obtain approval for such a measure, but we have to be responsible and evaluate everything that's on the table."

Pedro Pierluisi, Puerto Rico's representative in Congress, criticized García for pursuing such a proposal in private.

"It's an irresponsible move that greatly damages Puerto Rico's image before Congress and the financial markets," Pierluisi said.

García returned last weekend from an official trip to Washington, where he met with U.S. legislators to talk about the Chapter 9 bankruptcy proposal and other issues.

Puerto Rico's Government Development Bank, which oversees the island's debt transactions, has warned that the government could have to shut down in the coming months if new measures to generate revenue are not taken.

García recently signed a bill to increase the island's sales tax from 7 percent to 11.5 percent and to create a new 4 percent tax on professional services. The sales tax increase goes into effect July 1 and the new services tax on Oct. 1, with a transition to a value-added tax by April 1.

Legislators are now debating a proposed $9.8 billion budget that calls for $674 million in cuts and sets aside $1.5 billion to help pay off Puerto Rico's debt. The budget has to be approved by June 30.

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