Big financial trouble for Puerto Rico: The government won't make nearly $370 million in bond payments due Monday after a failure to restructure or find a political solution to the US territory's spiraling debt crisis. Gov. Alejandro Garcia Padilla said Sunday he had issued an executive order suspending payments on debt owed by the island's Government Development Bank, a default that will likely prompt lawsuits from creditors and could be a prelude to a deadline to a much larger payment due July 1. Island officials spent the weekend trying to negotiate a settlement that would have avoided the default but came up short. The governor said Puerto Rico can't pay the bonds without cutting essential services for the island's 3.5 million residents, including keeping schools and public hospitals open. "We will never do is put the lives and safety of our people in danger."
The Government Development Bank had $422 million in payments due Monday. Puerto Rico will pay $22 million interest, and the bank reached a deal Friday to restructure about $30 million, leaving it short $370 million. Nearly all of the bonds are held by a variety of US hedge funds and mutual funds. Puerto Rico has suffered through more than a decade of economic decline, and Garcia Padilla's predecessors and the island legislature borrowed heavily to cover budget deficits, causing a debt spiral. Creditors have accused the government of exaggerating the crisis to avoid upcoming payments of more than $1 billion due July 1. Economists have warned this default could cause Puerto Rico to lose access to capital markets and make the situation worse as the government faces the larger July payment. (Read more Puerto Rico stories.)