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.
