She added that the default shows “Puerto Rico does not have the resources to make all of its forthcoming debt payments”. There’s one much closer to America.
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The U.S. commonwealth paid only $628,000 of a $58 million payment due on its Public Finance Corp (PFC) bonds, the head of its Government Development Bank said in a statement on Monday.
Dubbed the “Greece of the Caribbean”, the U.S. island was supposed to pay about US$58 million in interest and principal on the PFC securities, but only made a partial payment on the interest.
“This was a decision that reflects the serious concerns about the commonwealth’s liquidity in combination with the balance of obligations to our creditors and the equally important obligations to the people of Puerto Rico to ensure the essential services they deserve are maintained”, Melba Acosta Febo, president of the Government Development Bank of Puerto Rico, said in a statement. The picture is of widespread gloom as Moody’s sees this as among the first of bigger defaults on commonwealth debt and Standard & Poor’s portends other defaults over the next few months and signs of dismal liquidity.
The Puerto Rico debt includes approximately $18.6 billion of general-obligation bonds and government-guaranteed debt, $15.2 billion of sales-tax-backed bonds and $24.1 billion of bonds issued by government agencies, like the Puerto Rico Electric Power Authority.
By missing Monday’s payment, Puerto Rico has forced its debt holders to come to the table to discuss restructuring, considering investors won’t get any returns if the territory flat-out defaults.
Puerto Rico’s debt equals its GDP at a staggering $72 billion.
How can Puerto Rico help itself?
Puerto Rico bond prices have tumbled amid speculation that it won’t be able to repay what it owes as its economy stagnates and residents leave for the US mainland. The default was, however, not unexpected with Gov. Alejandro García Padilla warning about unsustainable debt levels in June. There are three and a half million people still living in Puerto Rico who expect their government to restore prosperity but citizens like John Mudd, a respected lawyer who specializes in Federal and Commonwealth law worry elected officials are trying to save their own necks instead of Puerto Rico. “We will vigorously defend the terms of the bond indentures”. These tax breaks propelled Puerto Rico to becoming one of the top prescription drug manufacturers in the world, and around 13 of the top 20 prescription drugs are actually made in Puerto Rico, according to Michael Fletcher, from The Washington Post. Hear more on why Attorney Mudd is skeptical of Puerto Rico’s officials here.
Unlike when Detroit filed for bankruptcy in 2013, Puerto Rico is not covered by Chapter 9 bankruptcy rules and cannot receive bankruptcy protection.
Puerto Rico’s Fiscal and Economic Recovery Working Group, a panel set up by Padilla, is scheduled by month’s end to provide a draft plan for how to resolve the debt crisis. “The constitution gives you a cause of action to go against the secretary of the treasury and order him by the courts to pay and I have no doubt that each and every court…will say you are going to pay”.
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There are self-help remedies that can be implemented to ease some of the pressure Puerto Rico faces.
