A federal board has asked a court to invalidate over $6 billion of Puerto Rico's federal debt after finding it was issued in "clear violation" of the territory's constitution.
The Financial Oversight & Management Board for Puerto Rico, known in the territory as "la junta," issued a statement Monday night stating all general obligation bonds issued in 2012 and 2014 were in "clear violation" of the Puerto Rican Constitution's bet limits and budget balanced requirement, because this "invalid debt" was used for deficit spending.
"As the representatives of Puerto Rico in the Title III restructuring, the Board has the duty to act in the best interests of Puerto Rico and all of its creditors," the board told CBS News in a statement Tuesday. "Challenging improperly issued debt is consistent with that duty."
Bondholders will lose their investments should a federal judge agree with the board.
"This really is a milestone," economist José Caraballo Cueto, a Princeton University assistant professor who specializes in Puerto Rico, told The Associated Press, per NBC News. "It is perhaps the board's best move in its two years of existence."
San Juan Mayor Carmen Yulín Cruz and Ponce Mayor María Meléndez told a congressional delegation last week the fiscal board overseeing Puerto Rico "doesn't work."
"You must eliminate the fiscal control board – it doesn't work," Yulín Cruz told the legislators.
"After two years of trying to get a grip, the board has not accomplished anything," she added. "They have not audited the debt. And so, they are literally flying a plane without a control panel."
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