GLOBAL ECONOMY

Puerto Rico's García Padilla uses emergency decree to protect transportation agency

SAN JUAN, PUERTO RICO- APRIL 25: Colorful homes line the cobblestoned streets April 25, 2004 in Old San Juan, the original capital city of San Juan, Puerto Rico. The old city is a historic district of seven square blocks made up of ancient buildings and colonial homes, massive stone walls and vast fortifications, sunny parks and cobblestoned streets.  (Photo by Joe Raedle/Getty Images)

SAN JUAN, PUERTO RICO- APRIL 25: Colorful homes line the cobblestoned streets April 25, 2004 in Old San Juan, the original capital city of San Juan, Puerto Rico. The old city is a historic district of seven square blocks made up of ancient buildings and colonial homes, massive stone walls and vast fortifications, sunny parks and cobblestoned streets. (Photo by Joe Raedle/Getty Images)  (2004 Getty Images)

Puerto Rico's governor on Wednesday again used a state of emergency decree to protect one of the island's struggling public agencies from lawsuits and preserve dwindling liquidity as the U.S. Congress works on a bill to restructure the island's $70 billion public debt.

The order allows Puerto Rico's Highways and Transportation Authority to suspend the transfer of toll revenues to bondholders and imposes a stay on legal claims, Gov. Alejandro García Padilla said. That will allow the government to pay contractors and avoid paralyzing safety and improvement projects, he said.

The agency, which runs and maintains the U.S. territory's highways and bridges, has about $4 billion in debt and faces a $233 million bond payment in July that it expects to make.

García said the order does not impose a moratorium on the agency's debt payments, though government agencies have defaulted on an increasing number of multimillion-dollar bond payments.

An analysis released this week by the Center for the New Economy, a Puerto Rico-based think tank, says the island's economy has shrunk 14 percent since 2006, while its population declined 9 percent and total employment dropped nearly 20 percent.

García said the transportation agency needs nearly $25 million a month to operate and more than $150 million to pay contractors.

Last month, the agency reached a $115 million deal with a Spanish-based company that manages the island's toll roads, agreeing to take a cut in revenue collections from 50 percent to 25 percent.

That prompted a lawsuit by bond insurer Ambac Financial Group seeking to block the deal due to concern it could undermine other claimants. Nader Tavakoli, Ambac's CEO and president, said Wednesday that the company will oppose any bill that does not provide for consensual debt restructurings, among other things.

"We are disappointed that rather than doing everything it can to meet its financial obligations and negotiate in good faith with creditors for consensual solutions, the government, on the advice of bankruptcy advisers, is engaging in further machinations to advance its lobbying campaign ahead of congressional action," he said.

Other Puerto Rico agencies are struggling to remain afloat as well.

The Government Development Bank, which issues loans and oversees Puerto Rico's debt transactions, was placed under a state of emergency in early April. The order allows withdrawals only to fund necessary costs for health, public safety and education.

García is pushing Congress to approve a debt-restructuring mechanism because there are no local or federal laws that allow Puerto Rico agencies or municipalities to declare bankruptcy. He lashed out at the U.S. government during a news conference Wednesday in which he urged Puerto Ricans to think twice about joining the U.S. Army.

"They are willing to stand up in conflicts that the United States has gotten itself into, but when it's time to stand up for Puerto Rico for a problem that the United States got us into ... then they drag their feet," he said, referring to tax cuts that Congress phased out a decade ago. "I demand that House Speaker Paul Ryan keep his word, because Puerto Ricans keep theirs when it's time for military service."

García also said he would reject any congressional bill that calls for a financial control board instead of a supervisory board.

Republicans in the U.S. House have delayed introduction of a bill that would create a control board to oversee some court-ordered debt restructurings.

The chairman of the House Natural Resources Committee, Republican Rep. Rob Bishop of Utah, said Wednesday that the bill's final version will be similar to previous ones, including the control board setup. He said the delay has centered on how the board's seven members would be appointed. Under the bill, the president would select some members from a list provided by the four Republican and Democratic leaders of the House and the Senate. Lawmakers have been working to ensure the bill is written so President Barack Obama can't easily reject those nominees.

In an effort to win needed Democratic support, Republicans are considering dropping a provision in the bill's earlier versions that would transfer federal land on the nearby island of Vieques to Puerto Rico. Democrats have opposed that provision.

The aim is to write a bill that could pass both the House and the Senate before Puerto Rico defaults on a $2 billion debt payment due July 1.

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