* New governor short on specifics about road to recovery
* Bond market anxiously awaits plans
SAN JUAN, Puerto Rico, Jan 2 (Reuters) - Puerto Rico’s new governor vowed on Wednesday to work “without rest” toward economic recovery after a savage six-year recession, but he failed to announce any specific measures to address problems, including the U.S. territory’s massive public pension liabilities.
Alejandro Garcia Padilla, who ousted pro-business reformer Luis Fortuno in a close election in November, spoke in his first public address as governor after a swearing-in ceremony outside the Caribbean island’s seaside capitol building.
“It’s time to move from worrying to action,” the new leader said in a speech that highlighted issues he faces, including “high unemployment and a high level of public debt.”
He stopped short of mapping any new strategies, however, after pledging to put forth a plan this month to ease investors’ and credit analysts’ concerns.
“The recovery is a path you have to walk step by step but without rest. You can’t resolve things overnight. Some things will be resolved more quickly than others,” Garcia Padilla said.
The $3.7 trillion U.S. municipal bond market has been anxiously awaiting plans by Garcia Padilla to deal with challenges resembling Greece’s since he defeated Fortuno, whose backing of economic austerity measures hurt him at the polls.
The 41-year-old governor, catapulted into office through a coalition that extended beyond his pro-commonwealth Popular Democratic Party, referred repeatedly to the importance of “solidarity” among all Puerto Ricans to help overcome the problems confronting the island.
Puerto Rico’s widely held bonds are currently rated just a notch or two above junk status, and Garcia Padilla also alluded to the possibility of an “unprecedented” credit rating downgrade.
Ratings agencies and investors have been calling for Puerto Rico to take further action on its government pension systems, which have a total unfunded liability of $37.3 billion, and also to return to a complete structurally balanced budget by fiscal year 2014, which starts July 1, 2013. The main Government Employees Retirement System fund has an unfunded liability of $25.45 billion.
Following the election, Moody’s Investors Service lowered the credit rating of the government’s general obligation bond two notches, to Baa3 from Baa1, with a continuing negative outlook.
While it recognized advances on the part of the government in controlling spending and taking steps to improve the economy, Moody’s expressed concern over the ability of the government to control costs and reform the retirement system in the near future, given continuing weak economic growth estimates.
Standard & Poor’s Ratings Services said there was a one-in-three chance of downgrading the commonwealth’s credit over the next several months. S&P rates Puerto Rico’s GO bonds BBB with a negative rating. Fitch Ratings rates them BBB-plus.
The 10-year spread on Puerto Rico bonds over triple-A muni bonds was 290 basis points last Friday, up from a yearly average of 233.5 basis points.
U.S. institutional investors, who hold much of Puerto Rico’s $52 billion of high-yielding, tax-supported debt, often applauded Fortuno’s reforms - including 30,000 or more government layoffs and spending cuts - as the best way to stimulate the island’s economy and safeguard their bond investments.
Karen Krop, senior director at Fitch Ratings, said the ultimate test of success of future policy will be whether or not Puerto Rico’s economy grows, a difficult task given the current deficit and high debt.
“The recession was longer and deeper in Puerto Rico than in the U.S. and they came a long way,” Krop told Reuters.
“But now what kind of proposal they can do within their budget and their debt to boost the economy and where the growth is coming from is still not clear.”