Puerto Rico’s governor said that the U.S. territory was in a “death spiral” and may default on the $72 billion debt it has accrued. “Even if we raise revenues and cut costs, the magnitude of the problem is such that we would not resolve anything given the weight of the debt we’re dragging,” the Democratic governor, Garcia Padilla, said in a public address.
In that speech, Padilla urged lawmakers in Washington to pass a law allowing Puerto Rico to enter a special form of bankruptcy which would be easier for the commonwealth.
“The only way we’ll get out of this hole is to join forces and agree, including bondholders, to assume some of the sacrifices,” the governor also said.
On Friday, the Puerto Rican government released a report on the commonwealth’s debt that was quite bleak. Essentially, the report outlined “structural problems, economic shocks, and weak public finances” compounded by the recession Puerto Rico has been fighting since 2006.
“The first step is to revive economic growth,” Padilla continued. “But we need to do more—much more—to return to riches and become more competitive and have an expansion in the private market.”
On Tuesday, Puerto Rico’s legislators will vote on a new budget. The proposal sets aside $1.5 billion for debt repayments, and cuts about $675 million from last year.
“There’s no one in this administration or in D.C. that’s contemplating a federal bailout of Puerto Rico,” White House Press Secretary Josh Earnest said on Monday. “But we do remain committed to working with Puerto Rico and their leaders as they address the serious financial challenges.”
In part, Puerto Rico’s woes are due to an exodus of natives from the island to the mainland U.S. in search of jobs. Combined with reduced revenue, the government of Puerto Rico has been increasing funding for certain programs, especially education, continually for several years.
Puerto Rico has been a territory of the United States since the American victory in the Spanish-American War. In recent years, it has functioned with a large degree of autonomy.
According to Padilla, postponing debt payments “is not about politics. It’s about math.”
Puerto Rico has the highest debt per capita of any state or territory in the Union.
The territory is constitutionally required to pay back general-obligation bonds, an important part of the total debt, before they even pay government employees’ paychecks.
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