LOAN ENDS GOVERNMENT
SHUTDOWN IN PUERTO RICO
A loan agreement signed by Puerto Rico's governor ended a two-week
partial shutdown of the island's government and will enable the
government to renew operations for the final two months of the fiscal
year.
The budget crisis ended Monday when Gov. Anibal Acevedo Vila signed
emergency legislation that provided a loan to the commonwealth.
The governor and legislative leader agreed to accept the recommendations
of a special arbitration panel, which paved the way for an end to
the immediate fiscal crisis that shut down all non-essential public
services. Most governmental offices closed May 1 as a result of
a bitter dispute between the governor and lawmakers over the need
for a new sales tax.
The agreement allows 1% of the sales tax to be used to repay the
loan, which will be made by Puerto Rico's Government Development
Bank.
Fiscal imbalance caused the Government Development Bank of Puerto
Rico to demand implementation of a 5.9% sales tax in return for
extending the loan and to jumpstart the island on its way to fiscal
reform. With final passage, the GDB will loan $741 million to the
island's government to meet its expenditures through June.
Moody's Investors Service indicated that all bond payments will
be made on time this year, and debt obligations remain a high priority
for the island's government. On a positive note, Moody's also commented
that the current crisis indicates that both leading political parties
recognize that the island's finances need attention and appear committed
to reform.
5/17/06
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