Puerto Rico to seek debt moratorium

SAN JUAN, Puerto Rico – Puerto Rico’s governor said Monday night he will form a financial team to negotiate with bondholders on delaying debt payments and then restructuring $72 billion in public debt that he says the U.S. island can’t repay.

Gov. Alejandro Garcia Padilla made the announcement just hours after international economists released a gloomy report on Puerto Rico’s economy in another jolt to the recession-gripped U.S. island as well as a world financial system trying to avoid a collapse in Greece’s finances. Garcia said he would seek a repayment moratorium of several years but did not provide specifics.

“Even if we increase revenues and cut costs, the magnitude of the problem is such that we would not resolve anything given the weight of the debt we’re dragging,” he said.

The team has until Aug. 30 to develop an economic and financial reform plan that would require legislative approval.

Anne Krueger, a former World Bank chief economist who worked on the report commissioned by Garcia’s administration, presented the findings to dozens of government officials ahead of Garcia’s address.

“The situation is dire, and I mean really dire,” she said.

Puerto Rico’s bonds were popular with U.S. mutual funds because they are triple-tax exempt, but hedge funds and distressed-debt buyers began stepping in to buy up debt as the island’s economy worsened and its credit rating dropped.