Lost for much of this summer because of an even larger debt crisis in Greece has been the one in Puerto Rico. Economists and others are warning that the U.S. territory could head down a Greek-like path if it is not allowed to declare bankruptcy as it struggles with a 72 billion dollar public debt.
As indicated by the Associated Press, Governor Alejandro Garcia Padilla has already indicated that the overall debt is unpayable and that he will seek a moratorium on payments. Unlike Greece, Puerto Rico cannot seek emergency financing from an entity like the International Monetary Fund because it is a U.S. territory. That implicates bankruptcy, but under current U.S. rules, Puerto Rico is not allowed to declare bankruptcy.
According to published sources, if Puerto Rico were considered an independent developing nation, it would be the eighth most heavily indebted in the world. Critics of permitting bankruptcy indicate that such a move would be unfair to holders of Puerto Rico’s bonds, who purchased those bonds with the understanding that the territory would not be allowed to eliminate its debt burdens using bankruptcy courts. Some of these bondholders are retirees who invested in Puerto Rican bonds because of their perceived safety.
