Puerto Rico at Risk of Government Shutdown in Months, GDB Says

Puerto Rico’s government may shut down in the next three months because of a cash crunch, the Government Development Bank said in a letter to lawmakers.

The bank, which lends to the commonwealth and its agencies, urged Governor Alejandro Garcia Padilla and legislative leaders in an April 21 letter to immediately implement spending cuts to balance budgets and also approve a proposed value-added tax.

“It is our duty to warn that a government shutdown is very likely in the next three months due to the absence of liquidity to operate,” Melba Acosta, the bank’s president, and its six board members, wrote in the letter.

The new tax and spending cuts may help the island of 3.5 million raise cash with debt. Puerto Rico is counting on a $2.9 billion oil-tax bond sale to inject cash into the Development Bank. The GDB’s net liquidity fell to $1.1 billion as of March 31, from $2 billion in October.

Acosta has said the island may have difficulty selling the oil-tax bonds unless the legislature approves a value-added tax. The proposed levy, which the governor proposed in February, would be applied at each level of production and distribution. Lawmakers are debating the VAT’s rate and how to lower income taxes and other levies.

Puerto Rico, which is grappling with $73 billion of debt, partially closed its government in 2006 amid a budget deficit. The economy has struggled to grow since that shutdown.

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