‘Debt is not payable’: Puerto Rico Debt

Published: June 30, 2015

‘Debt is not payable’: Puerto Rico Debt, The declaration by Puerto Rico’s governor that the island’s $72 billion in debt is “not payable” was not only a warning to its creditors. It was also aimed at leaders in Washington, who perhaps more than anyone could determine whether Puerto Rico’s finances can be stabilized or will slide into chaos.

But the federal response was relatively reserved on Monday. The White House made it clear that Puerto Rico would not receive a “federal bailout” but expressed some support for an effort to allow the island’s public corporations to use federal bankruptcy protections. As a United States commonwealth, Puerto Rico is not allowed to authorize bankruptcy, which means that impairing its debts could prove practically impossible.

But the push in Congress for Chapter 9 faces stiff opposition from many Republicans, particularly conservatives, who say that allowing Puerto Rico to restructure its debts in bankruptcy would amount to a free pass for decades of fiscal mismanagement by local government officials.

The debate could have significant ramifications for the 2016 presidential elections, particularly in the critical battleground state of Florida, which has a growing population of people who have left Puerto Rico. Many of these residents departed because of the declining economy but still have families there and stay engaged in local politics.

“My island needs help,” said Janice Lebron-Gerena, a middle school teacher, who moved to Florida from Puerto Rico a few years ago.

The most immediate effect of Gov. Alejandro GarcĂ­a Padilla’s debt warning was felt on Monday by holders of Puerto Rico debt and the companies that insure it. The price of some Puerto Rico general obligation bonds declined as much as 12 percent, to about 68 cents on the dollar, one of their largest declines in recent months, traders and analysts said. Bond insurers’ stocks were down as much as 23 percent.

While investors have been expecting some kind of restructuring of Puerto Rico’s debt in the coming months, the governor’s statement indicated that even general obligation bonds, whose repayment is guaranteed by the island’s constitution, could be altered.

'Debt is not payable': Puerto Rico Debt


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