Over the next year, Puerto Rico owes $5.4 billion to its investors and it risks default as early as next month.
The total debt-load of the Caribbean commonwealth is $72 billion and the government has just a $9.8 billion budget for the next year.
“If we use dollars to make debt payments, we may not have the cash to pay for government services,” Luis Cruz, the commonwealth’s budget director, told reporters Monday in San Juan. He said officials are looking at “all options” for honoring its obligations.
Puerto Rico’s status as a U.S. territory has created some difficulties for both the federal and local governments in finding solutions to the Puerto Rico debt crisis.
As a territory, Puerto Rico is not eligible for Chapter 9 protection under U.S. law.
“We might let a city go into default, but not a state. A commonwealth is in a slightly different position,” said Robert Shapiro, former U.S. undersecretary of commerce for economic affairs. “But, keep in mind, they’re all citizens of the United States. There is a question of political rights. Do the people of Puerto Rico have the same right to have the federal government maintain the basic stability of their home that citizens of Mississippi and California do?”
The Obama Administration has indicated that they are not looking to provide bailout assistance to Puerto Rico.
“There’s no one in the administration or in D.C. that’s contemplating a federal bailout of Puerto Rico,” said White House spokesman Josh Earnest. “But we do remain committed to working with Puerto Rico and their leaders as they address the serious challenges.”
With no voting members in Congress, Puerto Rico has little political influence in Washington and may be left on its own to get its finances in order.
However, the Puerto Rican debt is based on the mass issuing of municipal bonds, and a collapse on the U.S. territory could spell disaster for the larger U.S. bond market.[Bloomberg][U.S. News]