As U.S. investors have been panicking over a potential Greek collapse, Puerto Rico’s governor Sunday announced that the small U.S. territory cannot pay its roughly $72 billion in debt.
Less than 24 hours later, Gov. Alejandro Garcia Padilla proposed a plan to seek a restructuring of the island’s debt, suggesting that the island is virtually insolvent.
A long-awaited report compiled by former International Monetary Fund staffers brought the Puerto Rican debt crisis back into the spotlight.
The report concluded that the U.S. commonwealth has lost the ability to fund itself through public debt markets, while pointing to what the authors described as “a decade of stagnation, outmigration and debt.”
Although the Puerto Rican debt crisis is no secret to residents of the island, the governor’s statement essentially was the first official opening for a renegotiation of the debt, said economist Carlos Soto-Santoni, president of Nexos Económicos, a Puerto Rico-based consulting firm, and deputy adviser for former Governor Rafael Hernández Colón’s administration.
But the problem is that, as per the U.S. constitution, Puerto Rico cannot file for Chapter 9 bankruptcy, like Detroit did, and neither can its public corporations and local agencies, Soto-Santoni added.