US Treasury seeks Congress action on Puerto Rico crisis

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Washington (AFP)

US Treasury Secretary Jacob Lew pressed lawmakers Monday to work fast to enable Puerto Rico to restructure its massive debt, as the US island defaulted on a $422 million payment.

Puerto Rico Governor Alejandro Garcia Padilla said Sunday that San Juan can't pay creditors when it needs to fund public sector salaries, health and education budgets, which, if neglected, could unleash a "humanitarian crisis."

"Congress must work quickly to resolve the few outstanding issues on the proposed legislation to help Puerto Rico," Lew wrote in a letter to House Majority Leader Paul Ryan, a Republican.

"For example, the legislation must provide a functional and seamless debt restructuring process that initially allows for voluntary negotiations while ensuring a timely and fair resolution."

Puerto Rico has been locked in recession for a decade, and already defaulted on some debt payments at the beginning of the year.

Despite sweeping spending cuts and some policy reforms, it has not been able to stop the deterioration of its budget deficit.

Garcia Padilla says he does not want a bailout but simply legal ability to restructure existing debt.

But in order to do so, the US territory of 3.5 million in the Caribbean needs the Congress in Washington to act, and it has not for partisan political reasons, the governor said.

Lew agreed, warning that "further inaction only gives those seeking to deter Congress from passing a bill more time to continue making inaccurate and misleading claims about the legislation."

"Absent enactment of a workable framework for restructuring Puerto Rico's debts, bondholders will experience a lengthy, disorderly, and chaotic unwinding, with non-payment for many a real possibility (and) the people of Puerto Rico will be forced to endure additional suffering," Lew said.

The $422 million in bond obligations is owed by the Government Development Bank (BGF).

Prior defaults by the island were smaller in nature. This one includes debt held by Wall Street bondholders and hedge funds.

With a debt of about $70 billion, the island is basically bankrupt. The BGF only has $562 million in assets.

Residents of this former Spanish colony won by the US in 1898 eventually were given a type of US local government with a legislature and governor.

Island natives have American citizenship but cannot vote in US presidential elections if they are Puerto Rico residents.

Puerto Rico's relationship with the US federal government is largely handled by the US Interior Department.