One of Puerto Rico's agencies failed to transfer funds for debt payments as the financially constrained commonwealth faces a growing fiscal crisis. The legislature failed appropriating funds when it passed the budget last month, thereby causing the Public Finance Corporation to transfer money due Wednesday, according to Puerto Rico's Government Development Bank.
In an e-mail, GDB President Melba Acosta said that in accordance with the terms of these bonds, the transfer was not made due to the non-appropriation of funds, as reported by Bloomberg.
Whether Puerto Rico will still pay $36.3 million on bonds set to mature on August 1 remains to be seen as the supposed transfer meant to cover this.
Puerto Rico runs the risk of debt default if it fails to pay investors next month. This could also be taken as a move for its intent to negotiate with creditors in restructuring its $72 billion responsibility.
An additional $300 million was included in the current budget last month by lawmakers with the aim to pay back the GDB debt. Even if the bank would be able to afford paying bondholders, legislative approval is required, but the legislature will not hold any session until the second or third week of August.
In an e-mail, analyst Ted Hampton of Moody's said that whether this missed payment by itself constitutes a default or not, it does show how pressures on Puerto Rico's liquidity and budgetary process are intensifying, as reported in Reuters.
The Huffington Post reported that two Senate Democrats-Senators Chuck Schumer (N.Y.) and Richard Blumenthal (Conn.) warned that if the U.S. Congress doesn't give Puerto Rico the authority to restructure its $72 billion debt soon, the default could trigger humanitarian crisis on the island.
Puerto Rico's crisis can be traced back to when Congress granted corporate tax breaks for setting up shop in Puerto Rico and made the island's municipal bonds "triple tax-exempt," which exempted bondholders from paying federal, state or local taxes on them. With this, Puerto Rican officials chose to invest money to further lure businesses to the island. In 1996, however, Congress decided to phase out the corporate tax breaks — which cost the U.S. government great losses in revenue throwing Puerto Rico into the current crisis.
