Puerto Rico narrowly avoided a multimillion-dollar default on Tuesday by announcing a last-minute bond payment while warning that a deepening financial crisis has forced the government to divert money slated for future debt payments to avoid a shutdown of basic services. Chuck Grassley, R-Iowa holds the gavel close while listening to testimony by Puerto Rico Gov. Alejandro Javier Garcia Padilla on Puerto Rico’s fiscal problems, Tuesday, Dec. 1, 2015, on Capitol Hill in Washington. Here’s a brief explanation of how Puerto Rico accumulated so much debt, how its territorial status complicates matters and how it could emerge from a almost decade-long economic slump.
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Puerto Rico is negotiating with bondholders over restructuring the commonwealth’s debt, which exceeds $70 billion, and paid only a fraction of around $58 million due in August. Yields on Puerto Rico general obligation, or GO, bonds fell as debt markets cheered the decision to leave creditors with their hair intact.
The Tuesday payment also fell under a category of debt that must be paid according to the island’s constitution, USA Today reported.
As of the 2013 U.S. Census, there were more than 30,000 Puerto Rican residents in the Lancaster County, which represented more than two-thirds of the entire local Hispanic population.
Representatives from Puerto Rico – including the Governor – have been making the case that the island should be allowed to undertake the same process Detroit used when it faced bankruptcy.
In a statement, the Government Development Bank warned the next step could be a major default by Puerto Rico public corporations, whose debt is guaranteed by the territory’s government.
But this is far from the end of Puerto Rico’s financial troubles. “We are simply requesting rule of law”, he said. Some argue that Puerto Rico’s convoluted political status has hastened to its economic decline, because it receives less federal funding than US states and must get congressional approval for certain actions as it tries to manage its debt.
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“This crisis affects our citizens and we desperately need a solution that makes the debt sustainable and prevents austerity”, noted LeCompte. Richard Blumenthal, D-Conn. “Congress can not tell Puerto Rico to drop dead financially”. Puerto Rico’s economy then fell into a tailspin that only worsened after the wider USA economy almost collapsed in 2008. One source familiar with the situation said negotiations had been going slowly and will now probably drag into next summer as the GDB payment buys some time.
