Puerto Rico governor presses for law to allow debt default

The governor of heavily indebted Puerto Rico called on the US Congress Wednesday to pass a law that will allow it to declare bankruptcy, warning that the island faces a humanitarian disaster.

Alejandro Garcia Padilla, governor of the US territory in the Caribbean that has unpayable debts of over $70 billion, said the only way out of its crisis and to avoid default at the end of this month is to be able to restructure its bonds under a formal bankruptcy regime.

"This is again a distress call to Congress," Garcia Padilla said. "We are asking for a legal framework and for fairness. Who can be opposed to that?"

"This is a humanitarian crisis happening under the American flag," he added.

Garcia Padilla was in Washington to press Congress to overturn laws than ban the island territory, like US states, from defaulting on debts and from entering bankruptcy protection.

At the beginning of this month he warned that the government and public enterprises were almost certain to be unable to make all of its debt payments at the end of December.

He also took action that would likely make that happen, with an executive order permitting revenues heretofore committed to debt service by state enterprises to be diverted to pay directly issued government debt.

Puerto Rico was able to accumulate a massive amount of debt for a population of just 3.5 million due to US laws that made the debt tax-free for investors put promised that the island could never default.

Despite the inflow of funds in the 2000s, however, the Puerto Rican economy sank into recession and has not recovered for a decade.

Over the past two years the government has slashed spending and moved to restructure some of its finances, but that has not stabilized the situation.

More than 300,000 people have moved to the US mainland for jobs, further enfeebling the economy.

The administration of President Barack Obama has repeatedly said it will not bail out Puerto Rico. But it has strongly supported bankruptcy legislation to allow an orderly debt restructuring under court supervision.

Senior US Treasury official Antonio Weiss said Wednesday that restructuring "is inevitable" but that without a new legal framework, it would take very long.

"There is real risk of another lost decade, this one more damaging than the last," he said.