NFT: Puerto Rico's debt crisis

US?

Newfoundland used to be coequal with Canada is a dominion. It accrued so much debt (and sadly a good deal of that debt was accrued fighting the UK's wars) that it was joined to Canada and simply became another Canadian province.

a number of years back.

to declare bankruptcy, affording it the same protections as other states and cities?

Act of Congress, I assume...

article says:

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A proposed debt exchange, where creditors would replace their current debt with new bonds with terms more favorable to Puerto Rico.

I assume that means extending the terms of the bonds, and slashing their interest rates in order to reduce debt payments. That plus more budge cuts, and some tax incentives to encourage investment. But many businesses and people have already left the island, which just erodes the tax base.

If that doesn't work, then what? PR can't declare bankruptcy, unless Congress changes the law to allow them to do so. Either way, as the article notes, a lot of investors own PR bonds, either directly, or indirectly, through mutual funds. And this will just make borrowing by other municipalities more expensive, especially after what happened in Detroit, etc.

It's a very bad situation.

In comment 12348890 Rob in CT/NYC said:

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to declare bankruptcy, affording it the same protections as other states and cities? Act of Congress, I assume...

There is little to no appetite in Congress to do something in an election cycle that will be viewed as a government bailout.

I'll first qualify that a 73B debt for an island nation of millions is unbeleivably irresponsible, but the US played a major role.

There is minimal indigenious economics to PR. What they did have was largely a means to exploit loopholes. For example, the pharmaceutical industry flourished in PR because manufacturers could produce their drugs with required federal oversight, but without certain federal and local taxes. So it was the largest imported industry for a long time until the US closed the loophole (not sure how) four to five years ago and the industry started to pull out. Those were great jobs that just dissappeared. Government planning based on that job sector got burned. The US just didn't care one bit. The timing between that and PR death spiral is not a coincidence.

And does insurance cover only principal or are interest payments included?

With the bonds being tax exempt nation wide, I'm sure there are some tax exempt mutual funds and individuals who move frequently who will be affected.

As a Puerto Rican, the infrastructure there is crumbling, and corruption is as rampant as street crime has become.

Incredibly sad.

Some carry upto to 5% of their portfolio in PR bonds...

Doesn't look good for them.

We will without question start seeing municipalities and states have the same problem.In many regions of upstate New York the population is declining as are private sector jobs.I cannot see how many of the cities and towns here will be able to pay the pensions of the teachers,public employees and the welfare and medicaid costs of the indigent.

In comment 12348942 Ten Ton Hammer said:

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As a Puerto Rican, the infrastructure there is crumbling, and corruption is as rampant as street crime has become. Incredibly sad.

Sounds like NJ. Can we send you christie? Maybe he can solve your problems (he failed with ours)

In comment 12349003 asbasb said:

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In comment 12348942 Ten Ton Hammer said: Quote: As a Puerto Rican, the infrastructure there is crumbling, and corruption is as rampant as street crime has become. Incredibly sad. Sounds like NJ. Can we send you christie? Maybe he can solve your problems (he failed with ours)

New Jersey would be better off if we sent them Steve Sweeney instead.

is how many billions of dollars American taxpayers have spent on the corrupt cesspool that is the U.S. Virgin Islands.

Some places in upstate NY are doing well. Saratoga county with Global Foundries and others continues to add jobs that are well paying.

Rochester still has a lot of small manufacturing that have many who are ex Kodak or Xerox people. A lot of expertise is still there

Even Buffalo has pockets of manufacturing.

Upstate, Central & Western NY are going to continue to grow in the food industry due to the abundance of water.

NY to some extent has figured out that empty buildings do not contribute to the tax base, people with jobs do - and manufacturing jobs pay well.

Have no one to blame but themselves. PR debt crisis did not happen overnight. Financial institutions have Surveillance groups that do risk management/mitigation on their assets. I'm sure the signs that this was coming have been evident for a while. Plenty of time to reduce their exposure in bond portfolios.

Under Chapter 9, States can't declare bankruptcy. Issuers secured by "special revenues" can't either. Local governments can only declare bankruptcy if their states provide a vehicle for doing so.

apparent when they are struggling. There is a vicious cycle where distressed cities and municipalities impact amenities, lowering housing prices (and property tax revenues) and depressing the tax base, which further depresses the area.

Rarely is it a one-time shock that sends them into permanent (or continued) distress.

In comment 12348924 SwirlingEddie said:

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In comment 12348890 Rob in CT/NYC said: Quote: to declare bankruptcy, affording it the same protections as other states and cities? Act of Congress, I assume... There is little to no appetite in Congress to do something in an election cycle that will be viewed as a government bailout.

It all depends on how much they owe Goldman.

In all seriousness, we can probably do a world of good without necessarily costing the taxpayer a penny. PR restructures debt with a federal government guarantee -- interest rate should approach Treasury rates given the guarantee. We do it for foreign governments all the time.
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