Puerto Rico narrowly avoided a multimillion-dollar default on Tuesday by announcing a last-minute bond payment while warning that a deepening financial crisis has forced the government to divert money slated for future debt payments to avoid a shutdown of basic services "Let us be clear: We have no cash left," Gov. Alejandro Garcia Padilla said. "This is a distress call from a ship of 3.5 million American citizens that have been lost at sea." Garcia signed an executive order that allows the island's Treasury Department to retain certain revenues from several public agencies to pay off the island's $72 billion public debt and ensure the continuity of essential services, including health, education, and public safety. Officials said they expect that up to $329 million will be diverted through June to pay off the debt.
At Tuesday's US Senate hearing, some senators warned that Puerto Rico needs to take concrete steps to organize its finances. Garcia's administration is seeking access to Chapter 9 bankruptcy as the island struggles to emerge from a nearly decade-long economic slump. Puerto Rico legislators recently approved a measure to create a fiscal control board that would help oversee a five-year fiscal reform plan. Garcia also has taken other measures including raising taxes and closing dozens of schools to cut costs and generate more revenue. The Obama administration has proposed a plan to help the island, but Republicans in Congress have said they want to first address the root causes of the crisis and see more data on Puerto Rico's financial condition. (Read more Puerto Rico stories.)