Post: #1

Quote:Puerto Rico facing historic default on its $72 billion debt

MIAMI — Puerto Rico is just days away from a historic economic collapse after the commonwealth's governor said the island cannot pay its $72 billion in debts.

Gov. Alejandro García Padilla, who took office two years ago, said in a statement Monday that the government's attempts to slash expenditures and restructure its debt have failed. He said an analysis by former World Bank and International Monetary Fund officials "for the first time acknowledges the true extent of the problem."

With several massive payments looming in the coming weeks, Padilla scheduled a media conference for 5 p.m. Monday to address the situation. Over the weekend, Padilla told The New York Times that the government's finances were "in a death spiral" and that "the debt is not payable."

The inability of the U.S. territory to repay its debt, combined with the financial crisis in Greece, would have far-reaching implications for financial markets and unsuspecting American investors. Morningstar, an investment research firm based in Chicago, estimated in 2013 that as much as 80% of Puerto Rico's debt has found its way into muni-bond funds, and 180 mutual funds in the United States and elsewhere have at least 5% of their portfolios in Puerto Rican bonds.

Puerto Rico, which became a territory of the United States in 1898 after a war with Spain, cannot legally file for bankruptcy, as American cities like Detroit have done when faced with similar fiscal crises. The island's constitution, however, states that Puerto Rico must make its debt payments before it pays for any other government services, leaving the island in a fiscal limbo if it cannot make its payments.

Since taking office, Padilla has worked with the island's development bank to restructure the debts owed by different government agencies. But that was a tall task for an island that began borrowing large sums of money in the 1970s to boost a lagging economy.

Municipal bonds are already exempt from state and local taxes, and Puerto Rican bonds enjoyed the added benefit of being exempt from federal taxes as well. That "triple-tax-free" status made the territory's bonds incredibly popular to investors. From 2000 to 2012, the government's public debt nearly tripled from $24 billion to $70 billion, according to the Center for a New Economy in Puerto Rico.

That left the island's governments inundated by debt payments. Combined with thousands of Puerto Ricans leaving the island for the U.S. mainland every year and a constantly sputtering economy, credit agencies lowered Puerto Rico's bond rating to near-junk status and warned of a full fiscal collapse.

Padilla responded by trying to cut everything, from basic government services to cell phone use by his employees. But it has proven not to be enough.

David Chafey, chairman of the board of the Government Development Bank of Puerto Rico, announced his resignation last week. And on Monday, Padilla is expected to ask Puerto Rico's creditors, and its residents, to "share the sacrifices" needed to get the island back on firm legal ground.

Greece, Puerto Rico ... who's next?

Post: #2

We are all Boricuas now!

to answer your question: next up are Portugal, Spain, Italy and then maybe France. Greece is really just the beginning of the EU's problems.

Post: #3

This has been long time coming. I lived there for several years and the economy was never that good. The government owns and runs the public utilities that are very inefficient and the population has been declining, most of them moving to the US mainland.

Post: #4

I wonder if it's possible that Puerto Rico become so depopulated due to a stagnant economy that at some point there is significant migration of non-Puerto Rican Americans to the Island, merging its culture with the U.S. to an even greater degree.

If their economy goes to shit, why wouldn't even more come to the U.S.

And if the U.S. is in possession of a beautiful depopulated tropical island, why wouldn't more and more people with money move there?

Post: #5

Quote:and 180 mutual funds in the United States and elsewhere have at least 5% of their portfolios in Puerto Rican bonds.

Post: #6

Don't worry, I'm sure the bankers who issued those bonds made a ton of money on the fees. /sarcasm

Post: #7

Barry O. administration says no bailout: http://www.businessinsider.com/r-us-not-...use-2015-6

Of course that is what they said just before they gave Detroit $300 million to assist in its restructuring. The difference is that Detroit can shed debts under the US Bankruptcy Code while Puerto Rico cannot use that statute. Methinks some islanders are going to regret voting against joining as the 51st State back in 2012.