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Puerto Rico admits it can’t pay $72 billion in debts

Puerto Rico’s governor Alejandro García Padilla told the New York Times in an interview that the commonwealth cannot pay its roughly $72 billion in debts and that significant concessions would likely be sought from creditors, the publication reported on Sunday.

Puerto Rico’s economy has been mired in recession for years. To restructure, it needs to reorganize its debts and should make reforms including cutting the number of teachers and raising property taxes, a report by former International Monetary Fund economists on the Caribbean island’s financial woes said.

The report, which was obtained by Reuters, gave a damning review of how Puerto Rico has arrived at its current state, which it said requires both structural reform and debt restructuring to fix.

“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 even suggests the restructuring of general obligation debt, which could be a precedent-setting move as investors usually regard as sacrosanct.

Social reforms proposed include suspending the minimum wage and reducing electricity and transport costs. The island must overcome a legacy of weak budget execution and opaque data, the report said.

Puerto Rico Governor Alejandro Garcia Padilla is expected to give a televised address on Monday, according to local media, and officials said they expected to discuss the report with him during the day.

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

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

The document, first posted on Puerto Rico media websites, was verified as authentic by one of the authors.