San Juan (AFP) - The governor of Puerto Rico announced Wednesday that the US territory would seek a form of bankruptcy protection to restructure its $70 billion debt, the largest municipal restructuring in US history.
By declaring bankruptcy, the US commonwealth in the Caribbean can prevent any interruption in services to island residents, Governor Ricardo Rossello said at a news conference.
"I have taken the decision to ask... that Puerto Rico be allowed to place itself under Title III protection to be able to develop a restructuring plan concerning repayment of the debt," he said.
The mountain of debt has left Puerto Rico struggling and the island -- a former Spanish colony of 3.5 million and a US territory for more than a century -- has several times failed to make payments.
That included a $2 billion installment due in July.
Puerto Rico is barred from using the same bankruptcy law provisions benefiting other US municipalities.
Introduced in 2016, the legal provision invoked by the governor would allow Puerto Rico to restructure its debt if San Juan fails to reach an agreement with its creditors.
Rossello's decision came two days after the end of a moratorium on payments to creditors. Several of the island's creditors on Tuesday had rejected its offer to repay 50 percent, preferring to take the matter to federal court to seek the full amount.
"This bankruptcy process is vital so Puerto Rico can receive the debt relief it was promised," said Eric LeCompte, executive director of Jubilee USA, which promotes debt forgiveness for poor countries.
The "process can bring the debt back to sustainable levels, protect vulnerable communities and promote transparency," he added in a statement.
The financial problems of the Caribbean island -- which has been locked in recession for more than a decade -- have shaken the large market for US municipal bonds, especially after Detroit declared bankruptcy in 2013.
Puerto Rico has been able to sell huge amounts of debt due to its tax-free status in the US municipal bonds market, making its debt more valuable than other city bonds.
But unlike Detroit, which declared itself broke to force creditors to write off some debt, as a commonwealth, the island has not been able to file for bankruptcy using normal US financial regulations.
In July 2016, then president Barack Obama signed the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), which establishes a financial control board to restore fiscal discipline on the island. It also blocks potential litigation between the island and its creditors.
Rossello filed the protection request under the PROMESA law.
Some critics condemn the US federal government for imposing "colonial"-style restrictions on the island, and austerity measures including rollbacks of minimum wage and overtime protections.