Puerto Rico needs debt restructuring – economists’ report posted on media sites – Reuters

Struggling Caribbean island Puerto Rico needs to restructure its debts to bridge financing gaps in coming years, in what could be a precedent-setting move, according to a copy of a report by former IMF economists posted on websites of the island’s media.

Puerto Rico’s governor’s office and a spokesman for the Government Development Bank, which commissioned the report, were not immediately available to comment on the authenticity of the posted document.

The report gave a damning review of how Puerto Rico has arrived at its current problems and said it needed both structural reform and debt restructuring to fix – even suggesting the restructuring of general obligation debt, which investors usually regard as sacrosanct.

Puerto Rico is struggling with a $73 billion debt load and faltering economy while its Government Development Bank is running low on cash. The island is facing crunch time this week with several bond payments while its struggling utility PREPA is in talks to avoid a possible default.

“Puerto Rico faces hard times,” the report said. “Structural problems, economic shocks and weak public finances have yielded a decade of stagnation, outmigration and debt… A crisis looms.”

The report was by former International Monetary Fund economists, who were engaged in February by the Government Development Bank to analyze the island’s economic and financial stability and growth prospects.

A co-author of the report did also not immediately respond to a request to verify its authenticity.

The island has the scope to raise revenue by $4 billion and save $2.5 billion annually by 2025, yet a large financing gap remains, implying the need for debt relief, and Puerto Rico would need to seek relief from principal and interest payments falling due from 2016 to 2023, the report says.

A debt restructure could be achieved via a voluntary exchange of existing bonds for new ones with a longer or lower debt service profile, the report said.

It noted that any restructuring of general obligation, or central government debt, would set a precedent as “no U.S. state has restructured (such debt) in living memory” and said any attempt would face legal challenge. However, it said there are limits to how much more expenditures can be cut or taxes raised.

The New York Times on Sunday cited Governor Alejandro Garcia Padilla as saying that the island’s debts were not payable and that creditors would probably have to take significant concessions such as five-year payment deferrals.

The economists’ report said that to increase competitiveness, the island should lower labor, electricity and transport costs. It must also overcome a legacy of weak budget execution and opaque data.

(Reporting by a contributor in San Juan and Megan Davies in New York; Editing by Toni Reinhold and Richard Borsuk)


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