(Adds quotes from chief of staff, background on payment)
July 24 (Reuters) - Puerto Rico is working on ways to increase liquidity at its Government Development Bank (GDB) to make a debt service payment due Aug. 1, the governor’s chief of staff said on Friday.
The GDB, which has reported dwindling cash reserves, faces $169.6 million in debt service on notes on Aug. 1.
“We are taking steps to provide liquidity to the bank so it can meet these payments,” said Chief of Staff Victor Suarez.
GDB President Melba Acosta has informed the government the initiatives are in a very advanced stage but need to be finalized, he said.
The GDB has reported that liquidity fell to $777.9 million as of May 31, down 24 percent from $1.02 billion at the end of the previous month.
Puerto Rico’s Governor Alejandro Garcia Padilla dropped a bombshell on creditors in June by saying the island needed to restructure debts to solve its fiscal problems, while an adviser to the island said the U.S. territory would soon run out of cash.
Suarez reiterated that the commonwealth does not have the current cash to make a separate payment due from its Public Finance Corporation (PFC) that is also scheduled for Aug. 1.
Its Public Finance Corporation (PFC) disclosed in a filing earlier in July that it failed to transfer $93.7 million in funds to pay the principal and interest on its bonds.
Default to bondholders on the Aug. 1 payment will occur unless the legislature reconvenes and approves a payment, director of credit analysis at HJ Sims, Richard Larkin, said in a research note last week.
In answer to a question on whether the PFC would make its upcoming payment, Suarez said the situation had not changed from when he previously said the commonwealth did not have enough cash to make the transfer.
Reporting by a contributor in San Juan; Writing by Megan Davies; Editing by Lisa Shumaker