SAN JUAN, Puerto Rico (AP) – The governor has called on creditors to postpone bond payments and restructure the U.S. territory's $72 billion in public debt as the government closes out its fiscal year Tuesday amid growing uncertainty about the island's economy.
Gov. Alejandro Garcia Padilla said Monday night that he will start meeting this week with legislators of all political parties as well as religious leaders and business owners to talk about how best to solve the financial crisis, which has drawn comparisons to the debt crunch that has hit Greece.
"I will ask everyone for sacrifices," Garcia said in a televised address without providing details. "If we don't assume that responsibility today, we risk not having solutions within reach or, even worse, losing control over them, giving the power of decision to others."
Garcia said he wants a debt repayment moratorium of several years although he didn't give a precise time frame.
Bondholders have yet to comment, and it's unknown what options Puerto Rico will have if they reject the proposal. The island's government cannot file for bankruptcy under current U.S. rules, nor can its public agencies.
Garcia's administration has pushing for the right of Puerto Rico's public agencies to file for bankruptcy under Chapter 9, and the White House urged Congress on Monday to consider changing the law to allow for that. The White House, however, said no one was contemplating a federal bailout of Puerto Rico.
Garcia's team has until Aug. 30 to develop an economic and financial reform plan, which would require approval by the territory's legislature.
Legislators are currently debating a $9.8 billion government budget that calls for $674 million in cuts and sets aside $1.5 billion to help pay down the debt. The budget has to be approved by Tuesday.
Garcia went on TV just hours after international economists hired by his administration released a report painting a grim picture of the government's financial bind and of Puerto Rico's economy, which has been in recession for nearly nine years. Their report said structural reforms, fiscal adjustment and debt restructuring is needed quickly.
"Unless a comprehensive approach is taken, the inevitable will happen and be far more damaging to the people of Puerto Rico," warned Anne Krueger, a former World Bank chief economist who worked on the report and presented the findings to dozens of government officials.
The economists praised Garcia's administration for taking action on higher taxes, pension reforms, spending cuts and freezes, but they also said revenue projections systematically exceed collections.
They added that government policy failures have hurt Puerto Rico's economy.
"Growth has not just been low, but output has actually been contracting for almost a decade now, which is remarkable for an economy suffering neither civil strife nor overt financial crisis," the report said.
Some opposition legislators remain resistant to Garcia's plan, accusing him of not including them in the debate. Rep. Jose Aponte told reporters the proposed measures are futile.
"It's deceased, and they're taking it to the doctor to revive it," he said of the economy.
Sergio Marxuach, policy director at the Puerto Rico-based consulting group Center for the New Economy, drew parallels between the economic problems in Greece and Puerto Rico.
"If we look at how the government operates, the lack of transparency of public finances, the bad quality of statistics, the massive tax evasion, the government corruption ... it's the same in Greece like in Puerto Rico," he said. "When it comes to the magnitude of the crisis, obviously Greece is at a much more complicated and deeper level ... and I hope we don't end up there."
The Greek government just shuttered banks for six business days and imposed restrictions on cash withdrawals. Greece's five-year financial crisis has sparked questions about its continued membership in the 19-nation shared euro currency and the European Union.
Puerto Rico's power company faces a Wednesday deadline for a roughly $400 million debt payment that it will likely default on, according to Moody's. The power company owes some $9 billion and faces a restructuring as the government continues to negotiate with creditors.
Businesses and consumers are bracing for an increase in taxes aimed at generating more revenue. A new sales tax of 11.5 percent, the highest compared with any U.S. state, goes into effect Wednesday and a new services tax begins Oct. 1, to be followed by a transition to a value-added tax by April 1.