Puerto Rico faces impending default

With a 1 August deadline looming, Puerto Rico is scrambling to pinpoint a source to re-pay a $58 million principle-and-interest debt from bonds sold by the Public Finance Corporation.

Victor Suarez, an assistant to Puerto Rican Governor Alejandro Garcia Padilla, said the payment will depend on whether or not the commonwealth has the cash available.

“The commonwealth is also working on a short-term borrowing backed by oil-tax revenue.  The payment will hinge on ‘the liquidity the government has to attend to each of its obligations,’ he said. “The priority will always be to attend to the essential services to citizens, such as security, health care and education,” Suarez said.

Puerto Rico is currently beset by a $72 billion debt.

Hedge fund managers are calling on Puerto Rico to re-pay debt through several measures which include closing down schools, cutting education staff, raising taxes, drastically cutting their budget, particularly on education, and auctioning off $4 billion worth of publicly-owned buildings.

Also plaguing Puerto Rico is the exorbitant spending on welfare:  It is estimated a family of three, when combining Aid to Families with Dependent Children (AFDC), Medicaid and food stamps and utility support, is awarded over $1,700 monthly.  This is higher than the median income on the island.

Additionally, the commonwealth is crushed under the weight of the Employee Retirement System and the Teachers Retirement System, both of which have a solvency of no longer than two years.

First Argentina, then Greece, and now Puerto Rico.

[Guardian] [Bloomberg]