Amidst years of recession, billions of debt, increasing taxes, and a low employment rate, Puerto Rico's top finance officials have warned of a forthcoming government shutdown due to the "lack of liquidity to operate."

A letter sent to the Legislative Assembly of Puerto Rico and Governor Alejandro Padilla from the Government Development Bank and the Treasury Secretary said that securing a financing deal to keep the island's economy afloat is slipping away. Puerto Rico has been trying to raise $2.95 billion for the economy.

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"A government shutdown is very probable in the next three months due to the absence of liquidity to operate. The likelihood of completing a market transaction to finance the government's operations and keep the government open is currently remote," the officials said.

"A government shutdown would have a devastating impact on the country's economy, with payroll and public service cuts, with painful recovery and of a long duration," stated further in the letter.  

With its hedge funds failing to meet the government's expectations and government bonds in a continuous slump, Puerto Rico has turned to passing unpopular tax reforms such as higher value-added tax and a modified Internal Revenue Code which will result in expenditure increase in production.

The government has been desperate to leave the two-decade recession which includes a total debt of $73 billion and an unemployment rate of over 14 percent. One of Puerto Rico's boldest move is Governor Padilla threatening to shut down the public transport system in November last year due to the lack of funding for the Highways and Transportation Authority (ACT). It was also Padilla's tactic to push lawmakers to pass the 68 percent tax increase on crude oil.

The goal of this controversial petroleum import tax is to gather $178 million that will cover the costs of the ACT to prevent it from shutting down. Fortunately, the bill was passed into law.

"It's a new tax system, a very complex law code which tackles necessary aspects, such as the income of municipal authorities and procedural matters," said Government Secretary Víctor Suárez in a conference for the tax proposals.  

TagsPuerto Rico, Governor Alejandro Padilla, financial crisis, government shutdown, Puerto Rico tax reforms