Updated 08:05 PM EDT, Mon, Sep 21, 2020

Debt Restructuring Needed in Puerto Rico to Avoid Widespread Defaults, Says Senior Official

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Puerto Rico's current financial crisis is worsening, with estimates of shortfall in debt payment through 2025, according to a fiscal and economic growth plan released from Governor Alejandro Garcia Padilla's administration on Monday.

The island's payment deficit is expected to reach $23.9 billion in the next decade, where the estimated five-year debt has increased to about $16.06 billion, according to the document cited in a Bloomberg report.

That is over $2 billion more than the previous forecast in September 2015, leaving the Puerto Rican government no choice but to request to extend the plan from five years to a staggering 10 years.

According to the document, such debt expansion occurred due to lower revenue collections for this year compared to what was anticipated by the government.

Furthermore, a senior state official explained that the country is in need of a debt restructuring to lessen the country's $70 billion debt burden. Otherwise, the territory will experience an increase in defaults in the coming years.

Aside from that, it puts the welfare of the citizens of Puerto Rico at risk, considering that their government cannot deliver proper public services, according to Puerto Rican Secretary of State Victor Suarez.

"The failure of the government to make timely payments for the delivery and provision of essential government services is putting at risk the health, welfare and safety of the people of Puerto Rico," he wrote in an email to Bloomberg.

He further explained in the letter that the measures taken by the government have so far made matters worse.

"Continuation of these measures is neither sustainable nor in the interest of any stakeholder, as they will only deepen the financial gaps that the commonwealth and its creditors will need to resolve," he explained.

Bloomberg's analysis of the debt crisis in Puerto Rico proved this to be true, as the country used revenue for repaying agency debt to cover general obligation (GO) payments.

Meanwhile, the U.S. government maintained their position on the issue, with a federal judge ruling Governor Alejandro Garcia Padilla's proposed debt-restructuring law to be unconstitutional.

According to the Associated Press as cited by Yahoo News, U.S. territories cannot declare bankruptcy, which is a privilege exclusive to municipalities and their utilities in the mainland.

Despite this, however, the AP believes that while the White House cannot give Puerto Rico a federal bailout, it can definitely create a process to allow the island to "restructure its debt and impose new oversight on finances."

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