Puerto Rico emergency fiscal measures to be exhausted by June: GDB president

By Clarece Polke

WASHINGTON (Reuters) - Puerto Rico will run out of fiscal emergency measures by June, the U.S. commonwealth's Government Development Bank president said on Friday, as she and the island's advisers made their case to U.S. congressional staffers on the need for legally sanctioned debt restructuring on the island.

With a 45 percent poverty rate and an exodus of people to the United States, Puerto Rico is trying to solve an economic crisis before it hits substantial debt payments in May and July. It has defaulted on some of its debt and is trying to persuade creditors to take concessions.

On Monday Puerto Rico asked its creditors to take a huge "haircut" on their debt.

In a Friday briefing to U.S. congressional staff members who asked about the island's proposed debt restructuring, GDB President Melba Acosta said Puerto Rico was "really at the end" of finding creative ways to stretch its cash.

"By June where the big payments are coming ... we run out of emergency measures," Acosta said. "That is why it is so important that we try to reach an agreement with our creditors to restructure our debt before we get to that point."

A presentation from the commonwealth said that it does not have enough cash for its May 1 and July 1 payments.

The plan reduces a big portion of its debt, $49.2 billion, by about 46 percent to $26.5 billion, by offering creditors payout reductions under a new "base bond." Jim Millstein, the government's financial adviser, admitted that creditors have balked at the plan, but said they were starting to warm to it.

Washington lawmakers have been examining various solutions for Puerto Rico, such as using a control board. Millstein said the "political consensus on the island" was that a control board would be part of any restructuring.

Some lawmakers and creditors have slammed Puerto Rico for not having provided audited financial statements for fiscal year 2014, which are months overdue. Acosta said on Friday that auditors at KPMG were demanding more financial data for the GDB and the island's retirement funds.

But Acosta challenged the notion that lawmakers and creditors were unable to help Puerto Rico without the 2014 statements, saying the island's financial picture was clear from earlier audits and that the updated figures were only "going to confirm what we’re saying" about the need for help.

Already, the island has introduced so-called clawback measures to divert money to pay debt at its infrastructure, highway and other agencies. It has defaulted in the past year and been sued by its bond insurers.

The commonwealth has been hoping for help from Washington, seeking an introduction of the same Chapter 9 bankruptcy protection as U.S. states.

Richard Cooper, partner at Cleary Gottlieb Steen & Hamilton, a law firm many governments call when they run into debt problems, said Puerto Rico's 11 different issuers should be allowed to go through bankruptcy and avoid years of litigation.

"We are talking about, I think conservatively, five years of litigation if we don't have a central forum in which to resolve this," Cooper said.

At a separate Puerto Rico panel discussion webcast from Washington, Antonio Weiss, counselor to U.S. Treasury Secretary Jack Lew, said the biggest risk of not having an orderly restructuring is "another lost decade" with cascading defaults and litigation.

On top of economic concerns, Puerto Rico on Friday declared a public health emergency due to the threat of the Zika virus.

(Reporting By Clarece Polke in Washington; Additional reporting by Daniel Bases, Hilary Russ, Megan Davies in New York; Nick Brown in San Juan; Writing by Daniel Bases and Nick Brown; Editing by Meredith Mazzilli)

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