The White House said Monday it would not provide a bailout for Puerto Rico, which is facing possible austerity measures as a deadline looms for debt restructuring to relieve the island’s $73 billion debt burden.
Puerto Rico’s governor has warned that the commonwealth can’t repay its public debt, delivering a serious blow to the island’s recession-addled economy. White House spokesman Josh Earnest said the federal government would provide financial expertise and access to existing resources — but not a bailout.
“There’s no one in the administration or in D.C. that’s contemplating a federal bailout of Puerto Rico,” he said. “But we do remain committed to working with Puerto Rico and their leaders as they address the serious challenges.”
After a damning report by former International Monetary Fund staffers about Puerto Rico’s financial stability, Gov. Alejandro Garcia Padilla said on Monday that over the next week leaders would host meetings and briefings and tell citizens the steps the commonwealth is taking to address its problems.
Earnest said that the Treasury Department is working with Puerto Rican officials to offer advice and that an interagency task force would help the island identify federal programs and funds it might be able to tap into. He described the assistance as similar to what the federal government offered Detroit during its crisis. Barack Obama’s administration declined to offer Detroit a bailout, and the city declared bankruptcy — an option not currently open to Puerto Rico as a U.S. territory and not a municipality.
Padilla said he’s considering asking Congress to change the law so that Puerto Rico’s public agencies may declare bankruptcy under Chapter 9, as Detroit did — an idea that seemed to gain traction at the White House.
Padilla told Puerto Ricans during a televised address Monday evening that his government's attempts to slash expenditures and restructure its debt have failed. He said an analysis by former World Bank and International Monetary Fund officials showed the "harsh reality" of the economic situation.
"Our public debt...is unpayable," he said. "The report states even if we increased taxes and cut back spending, the magnitude of the problem is such, because of the weight of the debt we carry, that it would solve nothing."
The island faces crunch time this week, with a June 30 deadline to agree to a restructuring of its power utility or agree to extend the deadline. A July 1 deadline also looms for paying various bonds, including its general obligation debt.
Residents of Puerto Rico could face tough measures such as fewer teachers, higher property taxes and suspension of the minimum wage law if Puerto Rico follows the report’s recommendations of debt restructuring and implementing austerity measures.
The report, made available late Sunday, said that Puerto Rico’s fiscal problems are much worse than assumed and that the island needs to restructure its debt because tax increases and spending cuts alone would be insufficient.
“The report for the first time acknowledges the true extent of the problem,” Padilla said in a statement. “We must make difficult decisions to meet the challenges we now know are ahead, and I intend to do everything in my power to lead us through this time.”
The report traces Puerto Rico’s problems to a phase-out of tax preferences for manufacturers, a housing price bust, the 2009 recession and rising oil prices. It also said the island has localized problems such as high labor and transport costs, restrictive business investment regulations, outmigration and population loss.