Puerto Rico has managed to make a payment due today on its bond debt, but officials are warning that the commonwealth's fiscal position remains tenuous.
As a result, the government will have to pay for essential government services by using money budgeted for upcoming debt payments, said Melba Acosta Febo, president of the Government Development Bank for Puerto Rico, in a statement. She added:
"Today's debt service payments reflect our commitment to honor our obligations notwithstanding the extreme fiscal challenges we face in an effort to facilitate a voluntary restructuring process with our creditors.
"However, make no mistake, Puerto Rico's liquidity position is severely constrained at this time despite the extraordinary measures the Government has taken to improve it."
Ahead of Puerto Rico's scheduled payment of more than $350 million on its debt, there was widespread speculation that the U.S. territory would default again.
The payment "narrowly avoided a complete default that could have hobbled its government," Democratic Sen. Richard Blumenthal of Connecticut said today during a Senate Judiciary Committee hearing.
The commonwealth wants Congress to make changes aimed at strengthening its economy over the long term, such as an exempting it from the Jones Act, which requires goods traveling between U.S. ports to be transported on U.S.-flagged ships.
More important, it wants Congress to change laws barring it from declaring bankruptcy, insisting it's the only way out of the fiscal trap Puerto Rico finds itself in.
NPR's Greg Allen reports that the White House supports such a move.
"The Obama administration wants Congress to pass a new type of bankruptcy that would be available only to Puerto Rico and other territories. The White House says a financial control board would be set up for Puerto Rico similar to one established for Washington, D.C., two decades ago. But even with that assurance, many Republicans are reluctant to amend the U.S. bankruptcy code."
Puerto Rico's governor, Alejandro J. Garcia Padilla, who testified at the hearing, detailed a series of emergency measures the island has taken to pay off its creditors, such as not paying tax refunds, and liquidating pension system assets.
These are in addition to the austerity measures it has taken, such as reducing expenses by 20 percent and raising taxes, he said, adding:
"We have taken this step in the trust that Congress will act. But do not be misled. We have no resources left. Puerto Rico cannot keep this up longer,"
Meanwhile, he said, the austerity measures have had a devastating effect on Puerto Rico's economy:
"The island is being suffocated by a vicious cycle of fiscal adjustments that decrease economic activity and revenues,
which then require further fiscal adjustments."