In less publicised news, for instance, Puerto Rico did make most of its $483 million debt payments due on Monday. By 2011, unemployment levels reached 16%, not helped by the fact that US laws on minimum wage apply in Puerto Rico, which is a prominent factor behind the reason for the reduction in employment. Some bondholders may recover as little as 35% of what they’re owed, Moody’s Investors Service said in a 22 July report.
Late last month, Velazquez warned that the implications of a broader default would be felt well beyond Puerto Rico.
Padilla told The New York Times that local people should not bear the brunt of the crisis. Fitch rates the commonwealth’s General Obligation (GO) and related debt “CC”; Rating Watch Negative, which indicates Fitch’s belief that default of some kind appears probable.
In June, Gov. Alejandro Garcia Padilla said the island would seek to reschedule its debt with creditors in hopes of avoiding a default.
The $58 million in bonds were issued by a subsidiary of the Government Development Bank to procure funds for school construction and the creation of landfills among others.
The government bank initially financed the projects, then refinanced them through its subsidiary, the Public Finance Corp.
Meanwhile, as per Huffington Post, a spokesperson for OppenheimerFunds said, “We are disappointed that the Commonwealth of Puerto Rico did not make its scheduled payment of principal and interest today”.
Unfortunately, Washington only pays attention to the island when the mainland is affected.
Daniel Solender, lead portfolio manager at Lord Abbett, declined comment on PFC holdings but said he hoped Puerto Rico would reconsider the non-payment.
“What we are seeing is that, not unlike with Greece, Puerto Rico has to choose between maintaining basic services and paying their bondholders”, Santoro said.
Morning analyst Beth Foos was cited writing that the Oppenheimer fund and Franklin Templeton Investments are some of the largest holders of the debt of Puerto Rico.
The letter of credit made the bonds look safer.
The GDB president, Melba Acosta Febo, said the partial payment was made from funds remaining from previous legislative appropriations, noting that the bonds are payable only by specifically appropriated funds.
Market participants dispute that assertion.
In the 20 century, Puerto Rico introduced tax breaks to manufacturers of shoes and clothes and moved on to industries including pharmaceuticals.
The main point for optimists is that, at $78 billion, Puerto Rico’s outstanding debt represents a tiny slice of the overall $4 trillion municipal bond market. Moral obligation bonds carry higher risk and, therefore, a higher yield. The result was massive industrial flight from the island and increased borrowing by Puerto Rico to pay expenses. Puerto Rico stands to lose whatever ability it still has to borrow at an acceptable price, and it needs more cash to continue normal government operations.
Back in the spring, Puerto Rico instituted a mandatory two-day furlough per month for its public workforce, which officials said would save $50 million dollars. If these policies are eased in, the economy will become stronger and more sustainable, only 11% of Puerto Rico’s GDP is collected from taxes whereas for more economically advanced countries the figure is around 33%.
Garcia’s administration has pushed for the right for Puerto Rico public agencies to file for bankruptcy under Chapter 9, which officials say would allow an orderly restructuring of the debt, but the proposal has not drawn any Republican co-sponsors in the U.S. Congress. The White House has said that no federal bailout is planned.