- The Washington Times - Tuesday, May 9, 2006

SAN JUAN, Puerto Rico (AP) — Puerto Rico’s governor and congressional leaders have agreed to abide by recommendations of a commission created to solve a fiscal crisis that has partially closed the island’s government and eroded its shaky credit rating.

The announcement followed a decision by one of the major credit-rating agencies to downgrade a key Puerto Rican bond to one notch above junk status.

The commission — which consists of a former head of the island’s Office of Management and Budget, a retired Supreme Court judge, an economist and an economic adviser to the legislature — will consider proposals to resolve the island’s budget deficit and issue recommendations today.

“We have agreed to accept the recommendations of this commission,” Gov. Anibal Acevedo-Vila said at a press conference Monday night with opposition leaders of the Senate and House of Representatives.

The possibility of a resolution came eight days after the island’s government ran out of money two months before the end of the fiscal year, forcing a partial government shutdown that halted many basic functions of the U.S. commonwealth.

About 150 protesting teachers blocked traffic yesterday at a port in San Juan, where cruise ships dock. Unions had planned demonstrations throughout the island to demand an end to the shutdown, but some were called off after news spread of a possible solution.

Moody’s Investors Service cut the rating of Puerto Rico’s general obligation bonds to “Baa3,” the agency’s lowest investment grade above junk status, affecting about $25 billion of government debt, the New York-based agency said in a statement.

Puerto Rico is operating off its 2004 budget because the governor and the legislature failed to agree on spending plans for 2005 and 2006.

Even before the partial shutdown, Moody’s and Standard & Poor’s, the other major credit-rating agency, warned that the Puerto Rican government had to collect more money and reduce expenses to make its bonds more attractive to investors.

A bitter divide between Puerto Rico’s two leading political parties has stalled talks to end the crisis that closed the island’s public schools and put more than 95,000 public employees — roughly half of the central government work force — temporarily out of work.

About 13,000 civil servants in 33 municipalities have also been furloughed because the cities are not receiving revenues from the island’s budget.

The governor and the opposition-dominated legislature have floated competing proposals to close a $740 million budget gap that led on May 1 to the closure of 43 government agencies and nearly 1,600 schools.

The House has repeatedly rejected the governor’s plan to bridge the gap by imposing the island’s first sales tax.

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