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Puerto Rico has begun to default, governor says; status of payment unclear

Disaster avoided. For now.

After a suspenseful night in which it was not clear whether Puerto Rico would make its December 1 payment on debt, Governor Alejandro Garcia Padilla testified before the US Senate Committee on the Judiciary that the US territory had in fact made the payment on all constitutionally backed debt. That said, the territory did default on debt from entities like the Puerto Rico Highway and Transportation Authority and the Puerto Rico Infrastructure Financing Authority.

“The imminence of a default when presented with the alternative between paying creditors and providing essential government services looms large,” Garcia Padilla told the U.S. Senate Judiciary Committee. “That is why starting today the commonwealth of Puerto Rico will have to claw back revenues pledged to certain bonds issued in order to maintain public services.”

In written testimony, Garcia Padilla said: “In simple terms, we have begun to default on our debt in an effort to attempt to repay bonds issued with the full faith and credit of the commonwealth and secure sufficient resources to protect the life, health, safety and welfare of the people of Puerto Rico.”

The actions by the administration of Garcia Padilla basically amount to buying a little time, until Puerto Rico finally faces the decision of having to default on constitutional debt or continue funding public services.