Puerto Rico government cites 'substantial doubt' about its solvency

The Puerto Rican Capitol in San Juan
Getty Images
The Puerto Rican Capitol in San Juan

Puerto Rico's government cited "substantial doubt" about its ability to continue as a going concern and said there is a threat to government services because its Government Development Bank is at risk of missing debt payments, in a draft of its long-delayed Fiscal Year 2014 financial report released Tuesday.

The draft, which reported a $49.2 billion deficit as of June 30, 2014 - $2.5 billion higher than in 2013 - comes amid criticism from some U.S. lawmakers and financial creditors that Puerto Rico has not been transparent with its finances.

The U.S. territory is mired in economic crisis and is hoping for help from Congress in resolving its $70 billion debt load.

"The commonwealth's management believes that there is substantial doubt as to the ability of the primary government" and other governmental entities "to continue as a going concern" under federal accounting standards, the report said.

The warning on Puerto Rico's ability to continue as a going concern means the island may not have enough resources to function as a government for 12 months from this report.

The report said the Government Development Bank (GDB), the island's fiscal agent, is at risk of missing debt payments and falling below legal reserve requirements in fiscal year 2016, which could threaten government services because GDB is the main depository for public agencies.

"If GDB were to be placed in receivership or if its liquidity falls below a level necessary to operate, ... the commonwealth and its instrumentalities may have limited access to their funds," possibly affecting "the provision of essential government services," the report said.

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Along with its towering debt, Puerto Rico has been struggling with a 45 percent poverty rate and a shrinking population as locals flee for the mainland United States. It has sought help both from creditors, in the form of voluntary cuts to repayments, and Congress, in the form of legislation letting it cut debt.

Both efforts have faced resistance, in part thanks to a perceived lack of transparency, as financial disclosures have been months behind schedule.

The government, in a statement on Tuesday, said it released the draft to give the public more information to evaluate its condition, but stressed the draft has not been audited, a process that could take another several weeks.

The draft does not include audited financial information from the GDB, or from the island's biggest pension, which, with a funding shortfall of more than $30 billion, is a key part of its crisis.

Still, Governor Alejandro Garcia Padilla doubled down on his call for action from Congress. "Denying any congressional assistance ... on the basis that the commonwealth has not issued audited financial statements is simply an excuse for inaction," he said in the statement.

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