| SAN JUAN
SAN JUAN Puerto Rico's unpopular governor Alejandro Garcia Padilla on Monday said he would not seek a second four-year term in next November’s election, as he turns his attention squarely to solving the island's $72 billion debt crisis.
Garcia Padilla’s administration is facing a federal corruption probe, and the governor’s approval ratings have been dismal, making him a long-shot for reelection. His former secretary of state, David Bernier, as well as Puerto Rico Senate President Eduardo Bhatia, are leading potential alternative candidates from Garcia Padilla’s Popular Democratic Party (PPD).
"We are fighting with all our strength to restructure debt ... and to meet our duty to our people to generate economic development," Garcia Padilla said in Spanish, in a taped address televised and livestreamed on Monday afternoon. "These battles require all our time, all our energy."
His decision paves the way for a new PPD candidate whose platform and popularity remain unknown, adding a new layer of uncertainty to ongoing debt restructuring talks with the island's creditors. It is unclear how Bernier or Bhatia would match up against the rival New Progressive Party (PNP), which has been more creditor-friendly than Garcia Padilla.
Polls suggested Garcia Padilla would have been an underdog in a general election against the PNP.
These are not easy times to govern Puerto Rico. Mired in a decade-long recession, the U.S. commonwealth faces a 45 percent poverty rate and a shrinking tax base due to emigration. Garcia Padilla has called for spending reforms and repayment cuts to creditors, but bondholders are resistant to the reductions and demand more spending reform and government transparency.
Laws block Puerto Rico from enforcing cuts through bankruptcy, yet Garcia Padilla's lobbying efforts in Washington, D.C., to push such legislative fixes have been slow-going.
His "lame-duck status could make him more aggressive" in restructuring talks with creditors, said John Miller, co-head of fixed income for Nuveen Asset Management, which holds around $300 million in par value of insured Puerto Rican paper.
The governor will be "perhaps less willing to engage in tax increases, and more willing to play hardball, including with some strategic defaults," Miller said ahead of the announcement.
The island narrowly avoided default earlier this month, but owes $332 million in constitutionally-guaranteed debt on January 1, and has said it would need to default on other debt to make that payment and maintain essential services. It has not said exactly which services it considers "essential."
Garcia Padilla also still will be in power next May, when $422.8 million on Puerto Rico's senior Government Development Bank notes come due. "I wouldn't see him as a lame duck necessarily," said one creditor-side source. "He's going to have actual legal power through a time when a brick wall" of debt hits the island.
Garcia Padilla’s approval ratings were at just 12 percent, according to an October poll by newspaper El Nuevo Dia, and earlier this month federal officials charged 10 people tied to his administration in a scheme to exchange favors for campaign donations.
Especially damaging to Garcia Padilla’s reelection chances, he has faced strong opposition within his own party, especially from mayors who feel he did not consult them on key decisions impacting towns.
Under Puerto Rico's electoral system, all political offices are contested on the same day, so whichever party is stronger on Election Day is likely to enjoy four years of control at all levels of government.
As a result, weak governors tend to face internal push-back from mayors, whose support is crucial to any campaign because they serve as a candidate’s primary link to voters.
(Reporting by Nick Brown, Luc Cohen and a contributor in San Juan; Additional reporting by Daniel Bases and Megan Davies in New York; Writing by Nick Brown; Editing by Diane Craft)