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Home>UPDATE: Puerto Rico has more than $70 billion in debt because of this

UPDATE: Puerto Rico has more than $70 billion in debt because of this

UPDATE: Puerto Rico has more than $70 billion in debt because of this


By Mark DeCambre, MarketWatch

President Donald Trump has said it would be prudent to wipe out the island's debt burden

Puerto Rico, and domestic entities linked to the U.S. territory, owe creditors more than $70 billion. A double-whammy of devastating hurricanes in recent months, Maria and Irma, only exacerbated the plight of the Caribbean island that sits about 1,150 miles south of Florida. Even before the natural disasters had struck, former Gov. Alejandro GarcĂ­a Padilla (who was succeeded by Gov. Ricky Rossello) declared its situation a "humanitarian crisis (https://www.c-span.org/video/?402128-1/puerto-rico-governor-alejandro-garcia-padilla-remarks-national-press-club)."

Why is Puerto Rico in such bad economic shape?

More than a decade of economic decline and ballooning deficits, amplified by an exodus of the territory's best and brightest, including doctors (http://money.cnn.com/2016/04/13/investing/puerto-rico-debt-medicare/?iid=EL), to the U.S. has dealt a heavy blow to the Puerto Rican economy. It has been in a recession, defined as at least two consecutive periods of declining growth, since 2006.

How has Puerto Rico been funding itself?

Puerto Rico lost access to the traditional municipal bond market in February 2013 after ratings firms downgraded it to so-called junk status. That has made it more expensive for the country to fund itself because lenders demand a greater return to lend to creditors considered on the lowest rung by credit-ratings firms. In March 2014, the island sold $3.5 billion in debt, with an 8.5% coupon, entirely to hedge funds.

Since then, Puerto Rico has been employing severe belt-tightening measures, including delaying payment of tax refunds, liquidating pension and other compensation funds and deferring payments on a host of other obligations.

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