Puerto Rico Debt Could Get Much Worse

According to a CNN.com Money article, Puerto Rico’s government must pay about $1 billion to its creditors on January 4th to avoid defaulting for the second time since August. The country’s debt is still almost $73 billion, according to Moody’s. This July 1st, Puerto Rico did make a $1 billion payment, avoiding default at the time, but in August of this year, the island defaulted on a small portion of its debt, and things have gotten worse since then. The August default was the first in history and that debt was owned by ordinary Puerto Ricans. In January, Puerto Rico must pay $332 million in general obligation bonds, ones that have the most legal backing.

Since 2006, the island has been in a recession. The unemployment rate is 12.5%, which is twice the national average. Many Puerto Ricans have been forced to move to the mainland of the U.S. in order to find employment, and the shrinking population hurts the island’s tax base, which it uses to pay off debt. Puerto Rico then upped spending for schools and maintained a costly energy policy of importing crude oil. Many government employees are owed pension payments which adds to its monetary troubles. Unlike the mainland, Puerto Rico does not have the option of entering into Chapter 9 bankruptcy, and much of the island’s debt doesn’t qualify for Chapter 9; instead it must negotiate with individual creditors, not all together.

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