Puerto Rico Can’t Pay $72 Billion In Public Debt And It Gets Worse…

Puerto Rico and Debt Crisis

Puerto Rico might be a U.S. territory, but the country does not have bankruptcy laws, that means a long fight ahead as the country attempts to pay back $72 billion in public debt.

Puerto Rico Governor Alejandro García Padilla is currently hoping to negotiate with creditors, while telling The New York Times, “There is no other option. I would love to have an easier option. This is not politics; this is math.”

Garcia is speaking out at a time when legislators in his territory are debating a $9.8 billion budget that cuts $674 million in spending while setting aside $1.5 billion for debt. Legislators have until Tuesday to pass that measure.

For a long time, the country’s bonds were popular among US mutual funds because they were offered tax-free. Hedge fund managers and distressed-debt buyers began picking up the country’s debt, which only helped to worsen its financial standing while leading to a credit rating drop. The island’s debt figure is now four times that of Detroit, according to the Washington Post.


“Analysts believe the central government will run out of cash as soon as July, which could lead to a government shutdown, employee furloughs, and other emergency measures,” according to The Wall Street Journal.

“This is going to be painful for the next two to three years,” Rep. Pedro Pierluisi, Puerto Rico’s Democratic representative in the US House, told The Journal.

Rep. Jenniffer González, a spokeswoman for the main opposition party had this to say about the Governor’s remarks.”I think it’s irresponsible. He met privately with The New York Times last week, but he hasn’t met with the leaders of this island.”

Under Puerto Rico’s constitution debt has to be paid before any other financial obligation is met. If García seeks to forgo debt payments it would require a referendum and a vote on a constitutional amendment.


Officials in April said they were considered a $2.9 billion loan. Recently García commissioned a report from International Monetary Fund and the World Bank in which they found, “There is no US precedent for anything of this scale or scope.”

The New York Times says the report “seems aimed at the Obama administration and Congress, both of which have taken a largely hands-off approach to Puerto Rico’s fiscal problems…. United States Treasury officials, however, have been advising the island’s government in recent months amid the worsening fiscal situation.”

In the meantime, students, government workers, and other citizens in Puerto Rico have taken to the streets in protest of public cuts to university budgets, public aid, and other programs.

Recently Puerto Rico’s Governor admitted that he considered reaching out to the US Congress in the hopes of filing for bankruptcy. García believes that filing such actions would help bring his country out of a decade-long economic slump.

$9 billion of the regions debut is owned by the government-run power company, a payment of $400 million is nearing on that loan.


García has taken several measures to generate more revenue in the country, including signing legislation that raised the sales tax to 11.5% and creating a 4% tax on professional services. Puerto Rico’s new sales tax goes into effect on Wednesday and the services tax will start on October 1. He has also announced a value-added tax that will start on April 1, 2016.

Taxes may offer a boost to a failing system, however, the country has experienced a massive migration over the last several decades. Between 1980 and 2000, the average annual migration of Puerto Ricans to the mainland United States was 12,000 people. From 2010 to 2013 — when the economy started falling apart — that figure jumped to 48,000 exits per year.

With the inability to pay off its massive debt obligations, a lack of bankruptcy laws, and citizens fleeing the country in hordes, Puerto Rico is starting to look a whole lot more like Greece these days.

Written by Peter Mondrose

Peter Mondrose

Peter Mondrose is the Editor-In-Chief at BusinessPundit. He received his degree in Economics in 1998 and a second degree in Journalism in 2004. He has served as a financial adviser, market trader, and freelance journalist for the last 11 years. When he's not investigating market conditions and reporting on workplace news, he can be found traveling with his wife, dog, and laptop. He can be reached at PeterMondrose@BusinessPundit.com or (929) 265-0240.