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Puerto Rico faces bank closure, privatizations amid crisis

Danica Coto, Associated Press

SAN JUAN, Puerto Rico (AP) -- Puerto Ricans will be facing a water rate increase, privatization of government operations and the closure of a bank that once oversaw the island's debt transactions, officials said Friday as they worked on measures to offset an economic crisis.

Some of the changes were outlined in new fiscal plans presented to a federal control board overseeing the island's finances. The plans for four heavily indebted Puerto Rico agencies will be amended in upcoming weeks, although officials noted that the water rate increase will start in January and that the Government Development Bank will be liquidated within a decade.

The board recently approved an overall fiscal plan for the central government that contains several austerity measures.

The board met in New York City to review the plans just days before a May 1 deadline on which Puerto Rico might announce a deal with bondholders to restructure a portion of its $70 billion public debt or opt for a bankruptcy-like process.

After May 1, the U.S. territory will no longer be shielded from lawsuits by creditors seeking to recuperate the money invested in bonds issued by Puerto Rico's government that have led to multimillion-dollar defaults. The island is struggling to emerge from a decade-long recession caused in part by previous administrations borrowing billions of dollars to cover budget deficits.

The board has the power to choose a bankruptcy-like path for Puerto Rico, and it voted on Friday to decide the issue in an executive session without the need for a public meeting. Board Chairman Jose Carrion declined to provide further details on what might happen after May 1.

"I really can't talk too much about what our thought process is," he said. "We'd like to be in line with the government.... For the time being, we are."

He said the board and government officials have held at least 30 meetings with bondholders in recent weeks, but no deals have been announced.

During its meeting, the board reviewed fiscal plans for the island's Government Development Bank, which owes nearly $5 billion to bondholders; the Electric Power Authority, which has $9 billion in debt; the Aqueducts and Sewer Authority, which has roughly $5 billion in debt, and the Highways and Transportation Authority, which has some $7 billion of debt.

None of those plans were made public during the meeting, though the board requested public comments on them. Carrion said the board simply was too busy and ran out of time to make the plans public before it met.

Christian Sobrino, president of the Government Development Bank, requested time and space for what he called an "orderly wind down" of a bank he said was once considered one of the island's most prestigious institutions.

"A freefall scenario is not considered an optimal solution," he said.

Puerto Rico's other public agencies also are struggling to overcome their debt. Board members said certain operations could be privatized, including the train system and the generation of electricity. They also pushed the troubled power company to lower its cost of electricity to 21 cents per kilowatt hour by 2023.

"It's absolutely essential that (the power company) be transformed," said board member David Skeel. "Puerto Rico cannot have regular blackouts and other disruptions."

The plans were submitted just hours before Gov. Ricardo Rossello announced in a televised address late Friday afternoon that he would approve a bill that limits vacation and sick days, as well as increases a tax on cigarettes, among other things. It also allows the governor to access funds set aside for the payment of certain bonds if specific conditions are met. The bill has sparked numerous government worker protests in recent days that are expected to culminate in an island-wide strike on Monday.

Rossello said that if he doesn't sign the bill, his administration would be forced to lay off 40,000 employees and eliminate a yearly Christmas bonus, among other things.

More changes are forecast as Puerto Rico prepares to submit its proposed annual budget by April 30 to the federal control board for approval.

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Danica Coto on Twitter: www.twitter.com/danicacoto