“The debt is not payable,” warned Puerto Rico Governor Alejandro García Padilla.
Governor Padilla sat down with the New York Times and simply stated that the $72 billion in debts cannot be paid back. “There is no other option. I would love to have an easier option. This is not politics, this is math.” Bankruptcy is not an option, either.
In order to avoid the “death spiral,” Padilla and his administration are looking for an array of substantial concessions from the island’s creditors. One of the concessions consists of deferring some debt payments for as much as five years or extending the repayment due dates.
Puerto Rico has a population of 3.6 million, but has accumulated more municipal bond debt per capita than any American state. This could prove troublesome for the rest of the United States municipal bond market because many states and cities (think Detroit or Stockton) depend on it to cover essentials, such as sewage, public hospitals, roads and construction.
It may also cause significant damage to U.S. investors who may hold some of these bonds in their mutual funds or other types of investment accounts.
Padilla conceded that it was time for action because the country couldn’t keep borrowing while also raising taxes on its people.
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