Puerto Rico Debt Crisis: Everything You Need to Know

Puerto Rico will miss a major debt payment today.

ByABC News
May 2, 2016, 3:59 PM

— -- Puerto Rico’s government failed to make a large debt payment today – a default that could intensify the island’s financial crisis.

The U.S. island territory did not pay the nearly $370 million in bond payments that were due.

Instead, Gov. Alejandro Garcia Padilla announced Sunday night that the commonwealth will first focus on making payments for crucial health and public-safety services, while declaring a moratorium on millions of dollars due on bonds issued by the Government Development Bank (GDB), which is the island’s lender of last resort.

"Faced with the inability to meet the demands of our creditors and the needs of our people, I had to make a choice," Garcia Padilla said in a televised address. "I decided that essential services for the 3.5 million American citizens in Puerto Rico came first."

A law enacted by Puerto Rico’s government in April empowers the governor to suspend debt payments to pay for essential services.

Puerto Rico is facing an increasingly dire financial crisis as it tries to deal with a mounting $70 billion pile of debt.

The default this week is considered an ominous sign but most of the focus in on July 1, when the government has to make payments on several general obligation bonds it issued. A failure to make these payments is considered more serious by financial markets than a default on the GDB payments due today.

The issue now is whether Washington will step in to help Puerto Rico before July 1.

Legislation that would allow the commonwealth to restructure its debt is currently bogged down in the House, with some conservatives calling it a government bailout. House Speaker Paul Ryan and other supporters of the legislation say it would not put any taxpayer money at risk.

Both the House and Senate are in recess this week, so further negotiations will have to wait.

White House Press Secretary Josh Earnest said today he hopes Puerto Rico's default will create "a new sense of urgency" for Republican lawmakers who “have been dragging their feet for too long."

He tallied that it's now been 194 days since the Obama administration put forward a legislative proposal for addressing the situation.

"So I think that should be an indication to you and to the people of Puerto Rico that the administration has been focused on this for more than six months,” Earnest told reporters. “And unfortunately we haven't seen the kind of movement in the Republican-led Congress that we need to see to make a bailout of Puerto Rico less likely."