Puerto Rico’s governor Alejandro Garcia Padilla says that he needs to pull the island out of a “death spiral” and has concluded that the commonwealth cannot pay its roughly $72 billion in debts. The warning comes only one day before the governor is expected to release a report that is conducted by former officials at the International Monetary Fund and the World Bank, which paints a very bleak picture for the commonwealth’s finances. Many media reports say that the governor will deliver a major speech Monday following the report’s release.
“The debt is not payable,” Mr. García Padilla said. “There is no other option. I would love to have an easier option. This is not politics, this is math.” This was a startling admission from the governor of an island of 3.6 million people which has piled on more municipal bond debt per capita than any American state. Much of Puerto Rico’s debt is widely held by individual investors on the United States mainland; in mutual funds or other investment accounts and they may not be aware of it.
As a commonwealth, Puerto Rico does not have the option of bankruptcy. A default on their debts would leave the island, its creditors and its residents in a legal and financial limbo that could take years to sort out. With other payment deadlines looming, Mr. Garcia Padilla and his staff are beginning to look for possible concessions on all forms of government debt. In order to pay its general obligation bonds, the central government must set aside about $93 million each month. In living memory, no American state has restructured its general obligation debt.