Puerto Rico needs freeze on lawsuits to face debt crisis: governor

(Reuters) - The U.S. Congress must protect Puerto Rico from investor lawsuits so that the island’s government can face a debt crisis and address what the U.S. territory’s governor describes as a building humanitarian crisis, he said on Thursday.

Puerto Rico's Governor Alejandro Garcia Padilla addresses the media after a meeting with U.S. Treasury Secretary Jack Lew (not pictured) in San Juan, Puerto Rico, January 20, 2016. REUTERS/Alvin Baez

Leaders in Congress agree that Puerto Rico needs an independent board to help face $70 billion in debt and a 45 percent poverty rate, but Governor Alejandro Garcia Padilla said the island needs more urgent help.

“Congress can legislate a stay on any legal action until that oversight board kicks in,” Padilla told reporters on a conference call.

Financial woes mean Puerto Rico cannot confront the Zika virus as it should, Padilla said, citing estimates that more than 20 percent of island residents could be infected this year with the virus linked to birth defects.

School septic tanks, a mosquito breeding ground, are overflowing in Puerto Rico, which lacks money to pay contractors to empty them, Padilla said.

“The humanitarian crisis in Puerto Rico is real and continues to grow with each passing day.”

The government of Puerto Rico highlighted the territory owes vendors, including those who provide gasoline to police and fire departments and maintain schools, $1.9 billion. In addition, it has yet to pay out $50 million in 2014 tax refunds.

The White House and Congress agree that Puerto Rico cannot face its financial crisis alone but leaders have not agreed on whether the island should be able to seek relief in the courts.

Puerto Rico cannot use bankruptcy laws to address its debt problems, tools that were available 20 years ago.

Paul Ryan, speaker of the U.S. House of Representatives, has promised to have a Puerto Rico rescue bill before the end of the month and Padilla has applauded that commitment.

That bill, though, will create an oversight board to negotiate with creditors rather than granting Puerto Rico immediate protection akin to bankruptcy, according to Congressional sources familiar with the draft legislation.

Democratic leaders this week outlined a different plan: allow Puerto Rico time, perhaps as much as a year, for some breathing room to work out a deal with a stay on its debt payments.

Republican and Democratic leaders, along with the Treasury Department, will likely have to hash out details of a bill but Padilla said granting a stay on investor lawsuits was a needed interim step.

Congressional Republicans working on the Puerto Rico legislation have not decided whether they have the authority to freeze investor lawsuits or whether doing so would cause more confusion, said the sources.

Puerto Rico negotiated a restructuring of debt owed by the power utility, known by its initials as PREPA, but even then it was a partial solution.

Padilla said PREPA, which accounts for 14 percent of the territory’s overall debt load, took 19 months to reach a deal with 62 percent of the power utility’s creditors.

“That is maybe the showcase on why Congress need(s) to approve the framework, the legal framework and to help with the holdouts,” Padilla said. Negotiations are ongoing, he said.

Reporting by Patrick Rucker in Washington and Daniel Bases in New York; Editing by Meredith Mazzilli and Matthew Lewis