Puerto Rico owes creditors $72 billion dollars and the Governor, Alejandro Garcia Padilla says they can’t pay up. It’s so bad that the Caribbean Isle is worst off than Detroit was.
“The debt is un-payable,” said Governor Padilla. “We have no other options and this is not politics, it is math.”
The debt has become so crippling that inevitably there will be cuts to basic services on the island. Reductions in government benefits, diminished subsidies to students attending the University of Puerto Rico, and more layoffs.
This coincides with the release of a report by former officials of the International Monetary Fund and the World Bank, who concluded that Puerto Rico’s debt burden is unsustainable and widespread cuts are proposed to reduce spending and clean up government finances.
In the last decade, their debt has doubled, while investor concerns grew as the government showed liquidity problems says Shaygan Kheradpir.
“We need to grow the economy,” said Governor Padilla. “If not, we’ll enter into a financial death spiral,” he said.
Of course the financial mess didn’t occur overnight. Their economy has endured eight years of negative growth, and there’s been a significant exodus of residents. The government downsized jobs, cut pensions, and increased taxes, but output has remained minimal at best.
A diminishing population, declining production, and nothing to fall back on leaves Puerto Rico with no more options.
And the Caribbean island of 3.5 million people isn’t a city, so they cannot declare bankruptcy, and if they fall into a debt default, it could take a decade for them to fix.