Puerto Rico debt crisis: How did we get here? - BBC News
The situation has been dire for some time, with the semi-autonomous US territory suffering from an economic recession for nearly a decade.
But alarm bells truly began ringing during the summer of 2015 when Puerto Rico's governor, Alejandro Padilla, said that the island would be unable to pay its bills.
An island, indebted
$72bn
total debt
$20,724.30 approximate debt per person
2 number of defaults so far
9 approximate number of years of recession
Since then pundits have begun calling it the "Greece of the Caribbean," and Mr Padilla has warned of a humanitarian crisis that could unfold if the crisis worsens.
How did the situation get so bad?
Shortly after World War II, the US began implementing a series of development programmes, which transformed the economy.
Among the initiatives were tax breaks, the most famous known as Section 936, which was implemented in 1976, and exempted US companies from having to pay federal tax.
It had been one of the great postwar economic-development success stories, turning itself from a poor, largely rural society into a manufacturing powerhouse.
James Surowiecki, writing in the New Yorker
Getty Images
Fast forward 20 years, and the US government was looking to cut costs and balance its budget, and Section 936 was labelled "an expensive giveaway".
Puerto Rico's leaders warned of dire consequences if it were taken away, but the tax incentive was phased out over a decade beginning in 1996, and the economy entered recession in 2006.
As the economy has suffered, the island's government has had to borrow large amounts of money to maintain the quality of life that Boricuas - as the island's residents affectionately call themselves - had grown accustomed to.
Who is asking for what?
Governor Padilla is asking for the US Congress - to which Puerto Rico sends a non-voting observer - to grant the island's public utility companies and other institutions the right to declare bankruptcy and restructure debts, which is the same right their mainland counterparts currently enjoy.
He has repeatedly made the point that the island is not seeking a bailout, and the White House has ruled one out as an option, saying debt restructuring is the way forward.
Image copyrightGetty Images
What can the US Congress do? And what are they doing?
Democrats say that allowing the island to restructure debts, as Mr Padilla and the White House propose, would not cost taxpayers and is the right solution.
Republicans in Congress say that they want to see so-far undisclosed economic data from the island and to address the problem's root causes.
House Speaker Paul Ryan, a Republican, has said his chamber will come up with "a responsible solution" by the end of March, but his counterpart in the Senate has made no such promise.
Image copyrightGetty ImagesImage caption Governor Padilla has warned of a humanitarian crisis if a solution is not found
How do people on the island feel?
Around 10% of the island's population has left in as many years. Today, as many as 3,000 Boricuas are fleeing the island each week, according to the US Treasury Secretary.
The governor has warned that if a solution is not found, he will have to start sacking police officers, fire fighters, and other employees.
He said that ultimately a humanitarian crisis could emerge.
Meanwhile, the issue has become political, with statehood supporters saying the crisis demonstrates why the island should become the 51st US state and Independence activists say it demonstrates US indifference towards the island's welfare
Puerto Rico continues to struggle under a massive debt crisis and a flagging economy. How did the situation get so bad? And what can be done?
Conservatives have long argued that out of control government spending will have dire consequences in the future. Thanks to politicians following liberal economic theories, the American territory of Puerto Rico appears to be proving them correct. With the bill come due, Washington should not declare bankruptcy as a way to bail out Puerto Rican politicians who have run the Commonwealth into the poor house.
Take one look at the balance sheet and you can see that American taxpayers and banks who loaned money to the Commonwealth should not pay for the mistakes of politicians who followed policies that failed. The island of three million inhabitants has wracked up over $70 billion in debt! Over half the population works for the government. Economic policies have kept wages artificially high and corporate interests have been driven out of the island to find friendlier government policies. According to new data shared by Governor Alejandro Garcia Padilla’s administration this past Monday, the commonwealth won’t be able to make $23.9 billion in debt payments throughout the next decade.
The solution that is being pushed by the left is to bailout the island without forcing radical reforms that will shrink government and provide a friendlier business atmosphere. The White House and politicians on the island have rejected government reforms and are looking for Washington to provide them a bailout. They want Congress to enact legislation allowing them to declare bankruptcy to escape from their debt obligations. In this case, bankruptcy is the functional equivalent of a bailout. Such a move would forestall needed economic reforms and set a dangerous precedent for other municipalities and states dealing with their own spending issues. The precedent of following the recommendation of the Obama Administration will be felt well beyond San Juan.
The tourism industry in debt-burdened Puerto Rico urged precautions on Tuesday after U.S. health authorities alerted pregnant woman against traveling to the island because of the mosquito-borne Zika virus.
The U.S. Centers for Disease Control and Prevention issued a travel warning on Friday for 14 countries and territories in the Caribbean and Latin America, including Puerto Rico, where infection with Zika is a risk.
It particularly cautioned pregnant women, as Zika has been linked to serious birth defects. Puerto Rico, a U.S. territory, reported its first case of Zika in December.
"We are closely monitoring all information about the Zika virus jointly with all the tourism-related organizations," Clarisa Jimenez, president and chief executive of the Puerto Rico Hotel and Tourism Association, said in a statement on Tuesday.
Jimenez said travel agents, meeting and convention planners were being informed of the measures being taken at the tourism destination level.
"Among these are urging the use of repellents and vigilance of spaces prone to accumulate water in order to eliminate them and avoid the breeding of the mosquito," Jimenez said.
Zika is usually a mild illness with fever, rash and joint pain. There is no preventive vaccine or treatment, according to the CDC.
While the travel cautions may not help the island's image for tourists, it is not seen having a significant economic impact. Puerto Rico is struggling with $70 billion debt and is trying to renegotiate payments with creditors.
"I would be very surprised if it has any noticeable impact on the Puerto Rico economy," said Height Securities analyst Daniel Hanson. "There was pretty much no (economic) effect from the Dengue fever outbreak."
According to the CDC website, as of Dec. 9, there were 1,696 suspected cases of Dengue reported in 2015, of which 43 were confirmed in a laboratory.
Puerto Rico has estimated that tourism contributes about 6 percent of its gross domestic product, although Hanson said it was likely higher at around 13 to 15 percent.
Standard & Poor's analyst David Hitchcock said the leisure and hospitality sector represented only about 14 percent of total employment and 2 percent of GDP, "because it is basically a low-wage industry."
"It's indeterminate what the impact on tourism would be - we are not necessarily expecting an immediate big impact," said Hitchcock.
(Reporting by Megan Davies; Editing by Peter Cooney)
Dependiendo del lugar de origen y destino, los vuelos hacia y desde Europa puede costar varios cientos de dólares; pero una compañía busca reducir esos costos.
Wow Air es una aerolínea de origen islandés que comenzará a ofrecer vuelos desde la costa este de los Estados Unidos hacia varias ciudades en Europa por 199 dólares.
"Somos verdaderos pioneros en el modelo de bajo costo en los vuelos trasatlánticos", según dijo Skúli Mogensen, CEO de Wow Air, a la revista "Forbes", y es precisamente esa forma de negocio como buscará conquistar a los turistas y empresarios.
Aunque la tarifa iniciará en los 199 dólares, la realidad que se puede incrementar si desean agregar servicios a su vuelo como comida, equipaje extra, seguro de cancelación, elegibilidad de asientos, entre otros más; pero Mogensen aseguró que "si viajas ligero, no habrá extras" debido a que "solo pagas por lo que usas".
Será en junio próximo cuando comiencen a operar cinco vuelos semanales de San Francisco a Reykjavík, Islandia, además de cuatro vuelos desde Los Ángeles y 21 destinos en total como Londres, Ámsterdam, París y Berlín.
En la galería de fotos les mostramos cinco apps gratis para conseguir boletos de avión económicos.
A coalition called “Pennsylvania for Puerto Rico” is seeking political support for a solution to the island territory’s debt crisis that doesn’t burden its citizens and sets the stage for a more prosperous future.
They met Thursday at Lancaster City Hall to discuss strategy.
It was the group’s first meeting in central Pennsylvania, and it yielded an ambitious action plan.
Among the key elements: a letter-writing campaign, a social media push, lobbying of elected officials and large-scale demonstrations at the upcoming Democratic and Republican national conventions.
Angel Ortiz explains the Puerto Rican debt crisis and why Pennsylvanians should be concerned.
“There must be a universal expression of indignation,” said Norman Bristol Colón, a Lancaster businessman and activist. Colón served as head of the Governor’s Advisory Commission on Latino Affairs under Gov. Ed Rendell.
The crisis is not a Puerto Rican problem, but an American one, he said.
Mired in economic doldrums for a decade, Puerto Rico is roughly $72 billion in debt, which its governor has said is unpayable.
Bondholders insist on full repayment, accusing the government of corruption and mismanagement.
Congress must pass legislation allowing Puerto Rico to declare bankruptcy and allow it to restructure its debt, participants at the meeting said.
The territory previously had that power, but lost it when U.S. law was revised.
In the long term, Puerto Rico needs Congress to authorize other tax and health policy reforms, said Gretchen Sierra-Zorita, a public policy consultant based in Washington, D.C.
But right now, time is pressing.
January is a critical month, Sierra-Zorita said. Debt payments are coming due. There is bankruptcy legislation in Congress, but it won’t do Puerto Rico any good unless it is passed.
People who want to help should send letters to Congress, House Speaker Paul Ryan and President Barack Obama, she said. They should get on social media and present the facts about the crisis.
Ángel Ortíz, a former Philadelphia councilman, called for Puerto Ricans and Latinos to demonstrate at the Republican National Convention in Cleveland and the Democratic National Convention in Philadelphia. Both take place in July.
Organizers should aim to mobilize at least 10,000 Pennsylvania Latinos to gather in Philadelphia, and call on Latinos in other states to join them, he said.
“I think we can do that,” he said, adding that if it happens, “We will energize every Latino and Puerto Rican voter across the state.”
The movement should seek the support of allies, such as labor and women’s groups, Colón said, adding that Latinos have been consistent allies for them.
Mayor Rick Gray, who attended the meeting, said he was among the U.S. mayors who signed a letter to the House of Representatives urging support for the White House’s proposed package of legislative reforms for Puerto Rico.
He asked the coalition to prepare a summary of the problem and a model resolution for city councils to pass. Gray is president of the Pennsylvania Municipal League and said he would make sure the information is widely disseminated.
Pennsylvania for Puerto Rico was formed last year and is part of a broader national movement, said Nilda Ruíz, president and CEO of Asociación Puertorriqueños en Marcha, a social service organization based in Philadelphia. Thursday’s meeting was the first in central Pennsylvania.
Many at the meeting complained about Puerto Rico’s status as a territory, beholden to Congress and subject to numerous laws that limit its economic and policy options. Simply put, Puerto Rico is a colony, Ortíz said.
Much of the media reporting favors the bondholders’ point of view, Sierra-Zorita said. Lost in the discussion is the crisis’ effects on ordinary Puerto Ricans.
The island’s poverty rate is 45 percent. The unemployment rate is about 12.5 percent, but that doesn’t count the 40 percent of the working-age population that has given up looking for work, Sierra-Zorita said.
Puerto Ricans are emigrating in droves, with the well-educated among the most likely to leave.
Concerned about the cholesterol and fat in your diet? That's so 2015.
If you want to stay on the cutting edge of nutrition advice, what you should really worry about are added sugars, according to a new report from the federal government that urges us to cut back – way back – on sugar.
The 2015-2020 Dietary Guidelines for Americans recommends limiting the amount of added sugars in our diet to no more than 10% of daily calories. That's about 12 teaspoons of sugar a day. To put that in perspective, a can of Coke contains nearly 10 teaspoons.
Most of us would have to make big changes in our diets to follow the new guidelines.
Americans on average get about 13% of daily calories from added sugars; teens get closer to 17% of calories from added sugars, according to the new report. The natural sugar in foods such as raisins, apples or milk are not considered added sugars.
Nearly half of the added sugars in American diets come from sweetened beverages, such as sodas and sports drinks, according to the guidelines, published by the U.S. Department of Agriculture and the Department of Health and Human Services.
The Food and Drug Administration also has proposed changing food labels to list added sugars. The current label lists "total sugar," a combination of added and natural sugars. The Sugar Association opposes the labeling change, arguing that there's no scientific reason to differentiate added versus natural sugars.
The Sugar Association, an industry group, criticized the new advice on added sugars.
"We maintain these 'added sugars' recommendations will not withstand the scrutiny of a quality, impartial evaluation of the full body of scientific evidence," the group said in a statement. "As with past examples of dietary guidance not based on strong scientific evidence, such as eggs, the 'added sugars' guidance will eventually be reversed. The lack of scientific rigor in this process has and will continue to result in consumer apathy, distrust and confusion."
Another big change this year: Americans no longer need to count the amount of cholesterol in their food, according to the guidelines. Research shows that a person's diet has a relatively small effect on cholesterol levels in the blood, which are more influenced by a person's genes.
According to the guidelines, Americans aren't just eating too much sugar.
They're also consuming too many saturated fats, refined grains and sodium. Men eat too much meat, poultry and eggs. But Americans don't eat enough fruits, vegetables, whole grains, seafood or dairy, according to the report.
Half of all U.S. adults – about 117 million people – have a preventable, diet-related chronic disease. Two-thirds of Americans are obese or overweight, thanks to a deadly combination of poor diet and lack of exercise, according to the report.
Obesity costs the USA at least $147 billion a year in medical costs, including the costs of treating weight-related disorders. Diabetes alone costs the USA $245 billion, according to the guidelines. The costs grow even larger when economists factor in the number of days missed from work because obese people are too sick to go to the office. These costs range between $3.38 billion and $6.38 billion a year, according to the CDC.
Americans can begin to eat better by making "small shifts" in their diets, such as by preparing meals at home, said Sylvia Mathews Burwell, secretary of Health and Human Services.
Americans "don’t need to make huge, fundamental changes," said Agriculture Secretary Tom Vilsack. "Small changes can add up to big differences."
While few Americans will read the new report, which is aimed at professionals and policy makers, health groups and food industry lobbyists have paid close attention. That's because the Dietary Guidelines for Americans shape what millions of people eat and influence billions of dollars in federal spending.
The guidelines form the basis for federal nutrition policies, including the $16 billion National School Lunch Program, which serves 31 million children daily, and the $4 billion Special Supplemental Nutrition Program for Women, Infants, and Children, also known as WIC, which serves 8.3 million people. The Department of Defense and Department of Veterans Affairs also consider the guidelines in their programs.
Lobbyists came out in full force to try to influence the new report.
More than 70 organizations signed up to speak at a hearing on the guidelines in March. Speakers included representatives from such diverse food industry groups as the North American Meat Institute and the Beer Institute and USA Dry Pea & Lentil Council.
The Physicians Committee for Responsible Medicine, which advocates a vegan diet, filed a lawsuit Wednesday against the Agriculture and Health and Human Services departments, charging that the agencies allowed the food industry to influence the new recommendations on cholesterol.
Puerto Rico’s population loss accelerated last year, a troubling sign for an island facing a severe fiscal crisis and a recession entering its 10th year.
The island’s governor said last week that the U.S. territory would make most of roughly $1 billion in debt payments due Jan. 1, largely as it borrows from reserve accounts. It will miss around $37 million in payments on two bonds Monday, and officials have warned of future defaults.
The island’s bondholders and the insurance companies that have guaranteed those bonds say Puerto Rico’s elected leaders have made the crisis worse by resisting deeper spending cuts and tax increases. The island’s local government has said there isn’t enough spending to cut or revenue to raise to plug budget deficits and, together with congressional Democrats and the Obama administration, they have called for Congress to create a mechanism for the island to restructure its debt.
The population figures, which were released last month, illustrate how Puerto Rico’s fiscal and economic crises are likely to worsen. Puerto Ricans are American citizens, and as they leave the island to seek employment or retirement in the U.S., the island faces a shrinking tax base to pay for debts incurred over the past decade.
The Census Bureau report showed that Puerto Rico’s population fell 1.7% in the year ended June, an acceleration from the 1.6% decline for the year before that. The island’s population has fallen by more than 1.1% for five straight years.
To put that in context, only seven states saw their populations decline last year: Connecticut, Illinois, Maine, Mississippi, New Mexico, Vermont and West Virginia. West Virginia’s 0.25% decline in its population was the largest of that group.
Since 1990, no U.S. state has witnessed an annual population decline of more than 1% with the exception of Louisiana, which saw its population fall 6% after Hurricane Katrina hit the Gulf Coast in 2005. The District of Columbia saw its population fall by at least 1% annually from 1994 to 1996, a period in which a federal control board was established by Congress to curb the city’s financial crisis.
The large annual drop in Puerto Rico’s population is particularly notable because it follows several years of declines. The population is now 9% lower than it was one decade earlier, a period in which its debt burden has increased 64%.
In the years following the start of World War II, no U.S. state has posted such a large 10-year drop in population. The closest is West Virginia, which saw its population fall 8% in the 1980s.
Only two U.S. states last year had fewer residents than they did ten years earlier: Michigan has seen a 1.3% drop in its population since 2005, and Rhode Island has lost 1.1% of its population. Even Louisiana has recovered from Katrina.
Puerto Rico has struggled to grow its economy since the expiration of tax credits last decade. Economists say a bloated welfare state has discouraged work while a minimum wage that is high relative to productivity and local income has made it harder for the island’s tourist and manufacturing sectors to compete against Caribbean peers. Tax evasion is high and labor-force participation rates are very low, compared with the 50 U.S. states.
Puerto Rico is facing a severe fiscal crisis and a recession entering its 10th year.
Puerto Rico faces a Jan. 1 deadline for roughly $1 billion in debt payments and has already signaled some of that amount could lapse into default, opening the door to potential litigation with creditors.
While analysts and sources close to the matter expect Puerto Rico to pay the roughly $330 million in general obligation debt due on Jan.1, nothing is certain. They said the tiny Caribbean island may be more likely to default on its other debt.
The U.S. Commonwealth, suffering from a near decade-long recession with a 45 percent poverty rate and a shrinking tax base due to people leaving the island, first defaulted in August when it failed to make the full payment on its Public Finance Corp (PFC) bonds.
Governor Alejandro Garcia Padilla has argued that the island’s debt, totaling around $70 billion, is not payable and requires restructuring. Puerto Rico has been negotiating with creditors to try and persuade them to take a reduction.
One source with GO debt exposure said debtors usually advise creditors ahead of time when they plan to default, and Puerto Rico had not indicated a default to GO creditors.
Daniel Hanson, an analyst at Height Securities who follows Puerto Rico, said in a Tuesday report that GO bonds have a “very high” probability of being paid, but that the island will likely skip some $35 million in Infrastructure Finance Authority (PRIFA) bonds, $1.4 million in PFC bonds, as well as possibly $91 million on bonds at its buildings authority (PBA).
Another creditor-side source told Reuters on Tuesday that some creditors were preparing possible lawsuits in the event of default, but it was unclear how quickly they could be filed.
The timing of Puerto Rico’s decision is unclear because the January 1 due date is a holiday. An announcement could come as soon as this week, or be delayed until next Monday, Jan. 4.
Skipping a payment on the GO bonds could be a jolt to the municipal bond market as GOs are viewed as safe. Puerto Rico’s GO bonds are backed by the good faith, credit and taxing power of the commonwealth and its bond documents state that such debt will constitute a first claim on available commonwealth resources.
Garcia Padilla on Dec. 1 granted the U.S. territory power to take revenues from public agencies such as the highways agency HTA, PRIFA and its convention center authority in order to pay GO debt and maintain essential services.
Default on any debt is likely to lead to litigation, but there is a “very high degree of certainty” that a missed payment on GO bonds would trigger lawsuits, Moody’s Senior Credit Officer Ted Hampton said last week.
Puerto Rico’s plight has gained increasing attention in Washington D.C., where the U.S. Treasury has been pushing Congress to allow the island to restructure its debts under U.S. bankruptcy law. The House is expected to hold a Jan. 5 hearing on Puerto Rico’s financial problems.
A GO default could be the most significant since Detroit defaulted on GO bonds in 2013. John Miller, co-head of fixed income for Nuveen Asset Management, which holds around $300 million in par value of insured Puerto Rican paper, said last week that not paying GO debt would be “very negative” for Puerto Rico bonds.
Island officials have given clear warnings of defaults. Garcia Padilla said last week that it is “very, very unlikely” there will be no default on debt due Jan. 1 and has also said the island has “no money”.
Melba Acosta, president of the island’s Government Development Bank (GDB) was quoted in local media saying the island is expected to default on a Jan. 1 payment on its PRIFA bonds.
Puerto Rico's future largely depends on what Congress decides to do to help the U.S. territory. It's about to default on yet another bond payment in January - this time, $37 million. Puerto Rico's total debt stands at about $72 billion. And without some kind of help, further defaults are all but certain.
ROBERT SIEGEL, HOST:
Politicians on the island say the U.S. government should allow the commonwealth to access Chapter 9 bankruptcy. Puerto Rico's ability to do that was written out of the bankruptcy code back in 1984. I talked about that demand to change that with Luis Vega Ramos. He's a member of the Puerto Rico House of Representatives. He joined us in the middle of his vacation at Disney World.
LUIS VEGA RAMOS: What we're asking is what any business, what any town, what any municipality in the United States has available - the ability to orderly restructure its debt, the chance to have our case heard and that we can sit down and get an agreement that permits an orderly payment of our debts, but, at the same time, that doesn't break down Puerto Rico.
SIEGEL: Unemployment in Puerto Rico is measured at about 12.5 percent. Since 2004, the population of Puerto Rico has declined by about 10 percent - largely people moving to Florida. What's it like? I mean, do you have relatives who've decided, I can no longer support my family here on the island, I'm moving to Kissimmee or to New York?
RAMOS: There are a lot of Puerto Ricans who have moved in the last five to 10 years. And that's a problem for Puerto Rico and the United States because some of the most productive, useful persons are moving. And that's not helping our economy.
SIEGEL: The people who can find good jobs in Florida, you'd say?
RAMOS: Right. And the key to fixing the whole problem is to jumpstart the Puerto Rico economy and to ease the enormous burden that the current structure of the debt has over Puerto Rico. So instead of positioning ourselves for a bitter fight, whether it's Puerto Rico and creditors, or whether it's the creditors amongst themselves because if we start litigating, it's going to end up - everybody suing everybody else, probably including the federal government because some may argue that being Puerto Rico - a territory of the United States - the territorial debt is also federal debt. So what I'm advocating strongly is let's sit down, let's structure a deal that is good for us. And the first step in that deal will be take measures that ease the current burden of the debt so that we can restart our economy. And when that happens, everything else will fall into place.
SIEGEL: Here's something that skeptical creditors of Puerto Rico say - they say, we'd like to see an audit. They just gave out an annual bonus of 13 months paid to civil servants on the island. That's not something you do when you're broke and you have no cash reserves. What do you say to that?
RAMOS: I agree that we have to get our audit out, and that's something that us in the legislature are also clamoring. All of us are in agreement that those numbers have to be out and they have to be certified and audited.
SIEGEL: Why hasn't that happened already? Why hasn't that taken place?
RAMOS: Well, we've had a problem for the last two years, and that's something that - probably that the government - the Development Bank of Puerto Rico and its president have to explain in a clearer fashion. And I'm not satisfied with that. And that's a part of the equation that I understand is very important in order to finalize a deal. But that shouldn't be an impediment for talks to start because, quite frankly, Puerto Rico cannot make those payments how they are structured. So instead of going into the abyss together, let's, you know, halt a moment, create conditions to have a restructuring and let's get on doing that.
SIEGEL: Representative Vega Ramos, thanks a lot for talking with us today.
RAMOS: Thank you very much.
SIEGEL: Luis Vega Ramos is a member of the Puerto Rico House of Representatives. He spoke to us while on vacation in Orlando.
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Like a homeowner with too big a mortgage, Puerto Rico has finally started falling behind on its payments.
And it doesn't look like there's an easy way to refinance its huge pile of debt to make it more affordable.
Gov. Alejandro Garcia Padilla announced Wednesday that the Caribbean island territory will be able to make most — but not all — of the nearly $1 billion in interest payments due Jan. 4. He told reporters he plans to meet with bondholders in early January.
The down-to-the-wire negotiations over just which bondholders will get paid centered on a haphazard juggling act that saw the commonwealth shuffling funds from one account to another to pay its debts. That "clawback" process will likely be the subject of a series of lawsuits from investors who won't get paid what they're legally owed.
While the short-term crisis has been building for years, the long-term outlook remains grim.
All state and local government finances got hammered by the Great Recession. But most of the 50 states have seen their revenues recover and their local economies have bounced back as more taxpayers returned to work.
Puerto Rico's economy, though, continues to struggle, the result in part of the elimination in 2006 of a favorable tax break for U.S. companies that sent many of them packing. Since then, a long-running recession has sparked an exodus of companies and skilled workers.
The economic decline also follows a major borrowing spree that has left the island with a debt pile that dwarfs any of the 50 states relative to its ability to pay.
For fiscal 2014, the latest data available for state-by-state comparisons, Puerto Rico's total public debt outstanding topped $70 billion that outstrips its annual economic output. By comparison, the next most heavily burdened state, Rhode Island, had a debt-to-GSP ratio of 19 percent. Nebraska had the lowest, with a ratio of just 2 percent.
That's left Puerto Rico with a crushing interest payment — more than 8 cents of every dollar of revenue — that is squeezing out funds for other local services.
At Wednesday's press conference, Garcia Padilla would not rule out further cuts in government services.
"We have to do all we can to avoid that situation," he said.
On top of the painfully high level of debt-service costs, Puerto Rico's revenues are being squeezed by high employment that cut into its tax base. Puerto Rico's jobless rate is currently at 12.5 percent — more than double the national average of 5 percent.
Commonwealth officials have called on Congress to act, but it's not clear what form that help would take. One immediate task is to set up a better mechanism for sorting through the fiscal mess and develop a long-term debt repayment plan.
"This increasingly urgent situation demands swift Congressional action to give Puerto Rico access to an orderly restructuring regime paired with independent oversight," the Treasury Department said Wednesday in a statement.
While the losses on Puerto Rico's bonds will be widely felt among many mutual bond funds that are found in millions of small investor portfolio's, the default isn't likely to impact the broader $3.7 trillion municipal bond market. That's because the commonwealth's fiscal strains are far worse than even the most cash-strapped of the 50 states.
Even states like Illinois and New Jersey — also struggling to balance their budgets and cope with large debts and underfunded pensions — are on much sounder financial footing, based on the strength of their economies and ability to make interest payments.
That's reflected in the credit ratings currently assigned to state governments.
Illinois, the lowest-rated state, has an A-minus rating, six notches below the top level Triple-A. Puerto Rico's debt rating has been steadily falling for years as its financial position has deteriorated. Its latest rating, in "junk bond" territory at CC, put it a full 19 notches below Triple-A.
The looming default will likely move it down another two notches, to a D rating.
Image copyright Getty Images 
Image copyright Getty Images 
