Characterizing this U.S. territory’s financial woes as a “harsh reality,” Gov. Alejandro García Padilla called on Puerto Ricans on Monday to “assume our responsibility” and share in making sacrifices.
Residents greeted the governor’s televised address with mixed emotions. Some tuned in at cafes and bars that broadcast the message, while others simply shrugged.
In his address, García Padilla said his administration can’t pay back some $72 billion in public debt.
The announcement is sure to impact the international financial system, which is already wobbling from a possible default by Greece. What it means for the island’s 3.6 million residents remains to be seen.
In a recent interview with the New York Times, García Padilla said his staff likely would seek concessions from many, or perhaps all, of the island’s creditors. That could include deferring debt payments for as long as five years, the Times reported.
In his address, which lasted less than 30 minutes, he confirmed deferring debt payments.
“Puerto Rico needs a restructuring plan,” García Padilla said. “We must act now ... I know it’s not easy but I also know we have no alternative.”
The move would affect not only Puerto Rico but because the island is a U.S. territory, the action likely would also impact America’s municipal bond market. Those funds are used by cities and states to pay for infrastructure needs such as roads and public hospitals.
The U.S. municipal bond market already has been disrupted by bankruptcies declared by various cities, including Detroit and Stockton, California.
Puerto Rico, which has been struggling economically for years, has the highest municipal bond debt per capita of any U.S. state.
Longtime residents, who have been dealing with the economic decline for years, said the proposed measures will affect everyone.
Among the proposals are lowering the minimum hourly wage, now at $7.25, and increasing sales tax from 7 percent to 11.5 percent.
Jose Rodriguez Baez, president of the Federation of Workers of Puerto Rico, said he agreed that the debt is not payable but that measures must not further impoverish the island.
“The situation for the working class is already very hard,” Rodriguez Baez said. “And a lot of our educated and able youth have fled because they have no recourse.”
“Obviously, all of the various sectors need to sit at the table to look for a viable solution,” he said.
Meanwhile, a report by former International Monetary Fund economists made public Monday suggests that Puerto Rico needs to restructure its debts and should make numerous reforms, such as raising property taxes and dismissing public school teachers.
According to Reuters, the report states: “Puerto Rico faces hard times. Structural problems, economic shocks and weak public finances have yielded a decade of stagnation, outmigration and debt. ... A crisis looms.”
Rosa Arias, who watched García Padilla’s address on a small television on her porch in the Santurce neighborhood, said she didn’t expect much.
“From what I heard the governor say, nothing is going to change,” she said. “Things are not going to get better. The worst is yet to come.”
Some who listened to the address had plenty to say about the governor himself.
“Since he was elected, all he’s done is raise taxes,” said Frank Ramos, 68, who runs a vintage shop in Old San Juan. “Everyone is fed up.”
Ramos said life indeed has gotten tougher in the five years since he moved from New York City. Business is slow and the cost of living is increasingly unaffordable for locals, he said.
“Foreigners are buying everything and I think that’s what the government wants,” he said. “Now that Cuba is opening, that’s going to help destroy Puerto Rico even more.”
“I thought I was coming back home to retire in paradise,” Ramos said. “But we’ve come back to hell.”