Published October 16, 2013
San Juan, Puerto Rico – The government of Puerto Rico denied Tuesday that it is near bankruptcy or might need U.S. federal intervention, offering those assurances during a conference call with investors aimed at alleviating concerns about a recent cut in planned bond sales and the island's continuing financial crisis.
Gov. Alejandro García Padilla said that the U.S. territory would not default on its debts as it heads into its eighth year of recession.
"We will do everything, and I repeat, everything that is necessary for Puerto Rico to honor all its commitments," he said. "It's not only a constitutional but also a moral obligation."
Investors became rattled when the island's Government Development Bank recently announced it would cut bond sales to between $500 million and $1.2 billion for the rest of the year, after investors pushed the yield on Puerto Rico bonds above 10 percent.
The Caribbean territory's government is a major issuer of bonds in the U.S., where the bonds are popular because they are exempt from federal and state taxes.
García said he would introduce legislation before year's end to overhaul the pension system for teachers, which is at risk of running out of funds. Earlier this year, he reformed a separate and larger public pension system that was crumbling under a $37.3 billion unfunded liability.
Last week, García also increased the borrowing capacity of Puerto Rico's main debt issuer, the Sales Tax Financing Authority, in a move praised by several municipal bond analysts.
The move comes as the territory struggles with $70 billion in public debt and a 13.9 percent unemployment rate, higher than any U.S. state.
Treasury Secretary Melba Acosta said rumors about the U.S. government intervening to help alleviate Puerto Rico's financial crisis are not true. But she said U.S. officials are discussing setting up a committee that would help find ways to boost the island's economy.
"It's something that's under discussion right now," she said.
Investors, however, kept questioning the possibility of the federal government becoming involved, and whether territorial agencies could file for Chapter 7 or 11 bankruptcy restructuring.
One noted the market is speculating that the island's power company could file for bankruptcy because it operates as a mostly autonomous entity.
"There seems to be a lot of misinformation out there," said Jose Coleman, executive vice president of the Government Development Bank. "Bankruptcy is completely out of the question concerning Puerto Rico."
Acosta promised investors that the government would cut its $820 million budget deficit in half by 2015. Officials noted that the deficit has already been reduced from $2.4 billion.
Officials also pledged to start holding regular investor webcasts at least once a quarter and said agencies including the Highway Transportation Authority would start posting their quarterly and monthly results.
David Chafey Jr., board president of the Government Development Bank, said he doesn't expect the island's four main public corporations to need subsidies or loans for the upcoming fiscal year, in part because of such measures as an average 60 percent rate increase by the state water company.