“This is not politics, this is math”, Gov. Alejandro García Padilla told The New York Times. This was confirmed by his spokesperson, Jesus Manuel Ortiz, when he said the administration is trying to defer its payments in the midst of negotiating with creditors. The constitution of Puerto Rico states that debt must be repaid prior to meet any other kind of financial obligation. Hampton and team assigned general obligation (GO) bonds higher ratings than most of Puerto Rico’s other securities given constitutional and legal protections for GO bondholders.
The New York Times reported that debt relief of such massive scale could end up hurting other local governments as investors become more cautious of lending.
Garcia said urgent action is needed.
Although Puerto Rico and Detroit may have reached the same point for similar reasons, they don’t have the same options. Blame it on a combination of long-term economic stagnation and a number of financial stresses, including a housing bust.
Bond insurers, including Assured Guaranty and National Public Finance Guarantee, are also parties to the deal.
The report on the Puerto Rican economy, released by the Government Development Bank, the main issuer of the island’s debt, said the economy is caught in a vicious cycle: weak public finances fuel investor wariness and low growth, and that in turn increases the budget deficit and debt. That can act discourage people from seeking work.
The US and Puerto Rico flags wave in front of the governors mansion in Old San Juan, Puerto Rico, Monday, June 29, 2015.
No so in Puerto Rico.
Can Puerto Rico file for bankruptcy? . Joseph Rosenblum, director of municipal credit research at Alliance Bernstein expects the 5pm speech to be light on details, “there will be more generalities than specifics and then we enter the phase where hard negotiations begin”. The island’s government cannot file for bankruptcy under current US rules, nor can its public agencies. The average USA state is closer to 15 percent. The report said “there is no US precedent for anything of this scale or scope”. Four of the five biggest funds holding Puerto Rican debt are with the fund manager Oppenheimer, according to Morningstar. If you are concerned about exposure, it’s best to check your funds’ holdings and determine whether it’s time to rejigger your investments. To this was added seven years in contraction, which makes Detroit really has “an advantage over Puerto Rico“. Every crisis is also an opportunity, right?
That means any default on its debt could take years to resolve.
Citizens of Puerto Rico could face tough measures such as fewer teachers, higher property taxes and suspension of minimum wage, if Puerto Rico follows the report’s recommendations of debt restructuring and austerity measures.
What’s next for Puerto Rico? .