Puerto Rico’s economic collapse is deepening as the island territory’s fiscal situation deteriorates. With its finances in dire straits, the government will fail to make billions of dollars worth of debt payments over the next 10 years.
According to an updated fiscal and economic growth plan released by Governor Alejandro Garcia Padilla’s administration Monday, the commonwealth won’t be able to make $23.9 billion in debt payments throughout the next decade.
The inability to pay its debts stems from falling revenues and rising annual interest payments until 2025. The payment deficit over the next five years has ballooned to more than $16 billion, up from the initial September forecast of $14 billion.
Officials say creditors have requested Puerto Rico to extend the debt payment plan from five years to 10 years.
Reports say Puerto Rico is currently in talks with bondholders to restructure the government’s $70 billion debt burden. If the talks are unsuccessful then there will be massive defaults across the commonwealth. Utility bondholders have already lost 15 percent of their value.
“The information contained in the updated plan makes all the more clear that actions must be taken before the commonwealth runs out of options to pay its debt and provide essential services to the people of Puerto Rico,” Melba Acosta, president of the Government Development Bank, told Bloomberg News.
For the last several months, Puerto Rico has postponed tax rebates and payments to suppliers as its cash reserves plummet. Come June, Puerto Rico will have a negative cash balance of close to $1 billion. This isn’t good as the island must dole out $2 billion in principal and interest once July 1 arrives, which likely won’t happen.
Those in Washington are asking Congress to intervene and provide Puerto Rico with a bailout. Last week, Treasury Secretary Jack Lew issued a letter to House Speaker Paul Ryan urging legislation that would give the commonwealth a hand.
“In order to assist the 3.5 million Americans living in Puerto Rico, Congress must pass legislation for the president to sign into law by the end of March,” Lew said in the letter to Ryan.
The Puerto Rican governor conceded last year that its $70 billion debt is unpayable.
Many say that the public sector unions have been the downfall of Puerto Rico. This idea is explained in the John Stossel video embedded below.
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