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Facing Massive Debt, Puerto Ricans Warned Belt Tightening Will Be Needed

LINDA WERTHEIMER, HOST:

The governor of Puerto Rico delivered some hard truths yesterday. He says the U.S. territory is unable to pay its debt. Puerto Rico owes more than $72 billion, and with deadlines looming, the governor asked Wall Street lenders to give the island more time. NPR's Greg Allen reports.

GREG ALLEN, BYLINE: For Puerto Rico, this is an important week. Lawmakers in the Commonwealth's House and Senate have to pass a budget due on Wednesday. On that same day, Puerto Rico has to pay hundreds of millions of dollars in debt payments. The problem is the island is desperately short of cash.

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ALEJANDRO GARCIA PADILLA: (Speaking Spanish).

ALLEN: Last night, Puerto Rican Governor Alejandro Garcia Padilla warned island residents that more belt-tightening will be needed. The situation is extremely difficult, he said. They're problems that likely come as no surprise to most Puerto Ricans. For more than two decades, the island's economy has been caught in a downward spiral. A lack of economic growth has led a succession of administrations to pile up huge deficits. The result is a government with massive debt, four times what Detroit owed when it declared bankruptcy. Legally, bankruptcy isn't an option for Puerto Rico. But last night, Gov. Garcia said that doesn't mean the island should have to pay what it owes.

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PADILLA: (Speaking Spanish).

ALLEN: Given the state of its economy, Puerto Rico's public debt, Garcia said, is unpayable. Garcia cited a report by a former chief economist of the World Bank that recommends lenders consider easier terms for the island. Garcia said he will go further and seek a multiyear moratorium on debt payments to allow the island time to rebuild its economy. Daniel Hanson, an analyst with Height Securities, is skeptical Garcia can pull it off.

DANIEL HANSON: I think it's very difficult. There seems to be some strong legal protection that stands in the way of the governor's plans.

ALLEN: Hanson says there is one key fact - Puerto Rico may just not have enough cash to make its debt payments.

HANSON: Regardless of what the courts say, if the Commonwealth simply doesn't have any cash, it's going to be very difficult for them to pay bondholders.

ALLEN: In his address last night, Garcia warned that all Puerto Ricans would share in the pain. But he saved his most impassioned words for the U.S. Congress.

(SOUNDBITE OF ARCHIVED RECORDING)

PADILLA: (Speaking Spanish).

ALLEN: Garcia called on Congress to help Puerto Rico by making some legal changes, including amending the bankruptcy code to allow the island the same protections as the states. That's something that so far Congress has been reluctant to do. Some fiscal conservatives believe changing the U.S. bankruptcy code to benefit Puerto Rico after it's racked up $72 billion of debt amounts to a bailout. And as a White House spokesman said yesterday, there's no one in the administration or in D.C. that's contemplating a federal bailout of Puerto Rico. Greg Allen, NPR News. Transcript provided by NPR, Copyright NPR.