Puerto Rico’s governor now has the power to declare a fiscal emergency and a moratorium on debt payments after both chambers of Congress approved Tuesday a measure to impose a moratorium until January 2017.
It also calls for the creation of a financial advisory authority that would oversee fiscal issues.
"Puerto Rico is in need of immediate relief," the measure states. It "needs tools to exercise its police powers in order to protect the health, safety and welfare of the people of Puerto Rico."
Supporters of the measure, which include Gov. Alejandro Garcia Padilla, say it will ensure the continuation of essential government services and will create a path to place the troubled Government Development Bank into receivership if needed.
The House of Representatives began debating the legislation Tuesday. Gov. Garcia Padilla called an emergency meeting with top government officials amid concerns the House might not approve the bill.
Some opposition legislators criticized the governor for seeking what they said was abrupt approval of the bill, which the Senate passed in pre-dawn hours as bondholders arrived in Puerto Rico to secure a restructuring deal. The presence of the bondholders rankled some legislators.
"Those prowling the Capitol are not those who lent money to our people, they are expecting an absurd profit at the expense of the people," Rep. Manuel Natal told reporters.
The measure comes as Puerto Rico urges the U.S. Congress to approve a restructuring mechanism to deal with a $70 billion public debt load that Garcia has said is unpayable.
The bill states that Puerto Rico may default on $400 million worth of bonds issued by the bank due in May and on $780 million due in July. It noted that the bank, which issues loans and oversees the island's debt transactions, has only $562 million in liquidity. The bank already faces its first lawsuit filed on Monday by a group of hedge funds seeking in part to stop the bank from forgiving debt.
Government officials said they are still in negotiations with creditors, who have rejected the proposed bill and warned it would lead to numerous lawsuits.
A group of investors holding $5 billion worth of general obligation bonds released a surprise debt restructuring proposal as the House began debating the bill.
"While we would like to negotiate with the Puerto Rican government in private and in good faith, the debt moratorium it has proposed that is before the Puerto Rican legislature has prompted this public release," the group said in a statement.
The investors offered to defer repayment of nearly $2 billion in principal for the next five years and said that it would help the island avoid a default in July. They also offered $750 million in liquidity through another general obligation bond sale.
Melba Acosta, president of the Government Development Bank, rejected the deal, saying it would not solve the island's problems.
"Incurring additional debt at a higher cost is not the answer to the commonwealth's fiscal issues," she said. "Indeed, it is exactly the type of 'Wall Street' solution that led us to the precipice we are now looking over."
Based on reporting by the Associated Press.