Did Puerto Rico Default? Yes, And There Are Interesting Implications For Americans [Video]


Puerto Rico just defaulted for the first time in history. The Commonwealth has danced on the edge of disaster for years, but now there’s a real danger.

On Monday, Puerto Rico failed to pay its Public Finance Corporation, or PFC, debt. Instead of a full $58 million payment, just $628,000 was made available. GDB President Melba Acosta-Febo said in a statement that the meager amount could be blamed on a “lack of appropriated funds for this fiscal year.”

“The partial payment was made from funds remaining from prior legislative appropriations in respect of the outstanding promissory notes securing the PFC bonds.

In accordance with the terms of these bonds, which stipulate that these obligations are payable solely from funds specifically appropriated by the Legislature, PFC applied these funds [to] the August 1 payment.”

In response to the partial payment, Moody’s stated that Puerto Rico was now in default. Moody’s analyst Emily Raimes said that the rating agency fears that the island Commonwealth will not be able to pay back the $72 billion it owes to creditors. Said Raimes, “This is a first in what we believe will be broad defaults on Commonwealth debt.”

If Puerto Rico does intend to stop paying what it owes, things could get very ugly, very quickly. Despite closing over 100 schools to relieve financial burdens, pressure to pay back creditors could cause the island’s entire educational system to collapse. Social services could completely dry up. There would be no relief for the destitute members of the population, and no money available anywhere.

Why should Americans be concerned? Well, unlike Greece and its tedious connection to the European Union, Puerto Rico enjoys a closer, albeit stranger, relationship with the United States. Puerto Rico is not a state, but it’s also not an independent nation: It’s a U.S. territory. Unlike the city of Detroit or a U.S. state, it cannot file for bankruptcy protection and use the American court system to help restructure its debt.

With its back against the wall, Puerto Rico will very likely push for changes that throw itself entirely on the United States. Prior to the default, bills were brought before Congress that would allow Puerto Rico’s public corporations to file bankruptcy. Others are pushing for “Chapter 9” bankruptcy protection for the entire island.

Not too surprisingly, the push for statehood has also grown, thanks to recent financial problems. It’s possible Puerto Rico could allow itself to officially join the U.S. — if only to escape massive debt burdens. Many of those debts are owed to American citizens, who chose to buy Puerto Rico’s debt. The move by the United States to interfere with the interests of creditors and members of the mainland American public could lead to a massive backlash.

It’s also important to note that the xenophobia that some Americans feel towards immigrants of Latino origin is utterly irrelevant when it comes to Puerto Ricans. Technically American themselves, they are legally able to come and go from the United States as they please. More are coming and staying in recent years to escape the poverty, crime, and financial chaos that is increasingly the norm within the island Commonwealth.

Despite comparisons, Greece cannot have its population uproot itself and move to wealthier parts of Europe with relative ease and convenience. The island Commonwealth is experiencing a rapid, ongoing population decline. Louisiana saw similar numbers within the last decade, but that was due to Hurricane Katrina’s devastation. The disaster driving the exodus of Puerto Rico is entirely man-made.

With a shrinking pool of working citizens to drive the economy, things are looking grim for the U.S. territory. Prospects aren’t much better for the hopeful Puerto Ricans who come to the mainland United States. Few have jobs, homes, or financial stability awaiting them when they arrive.

It is a difficult situation and one way or another, it will very likely be all of America’s problem very soon (if only as a repeated, central issue in the presidential election campaigns).

Do you think Americans should be concerned with the default by Puerto Rico? Should the U.S. territory be granted statehood, bankruptcy protection, or neither? Share your thoughts!

[Image Credit: Joe Raedle/Getty Images]

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