This entire situation with Puerto Rico reminds me of the bailouts with the financial industry. It’s just like the ‘too big to fail’ mantra we all heard during the financial crisis. Obama has already sent a ‘task force’ to assess the situation but to what end? Yes, this might be one of those ‘too big to fail’ situations that we really can’t afford but under Obama it’s gonna happen…
Gov. Alejandro Garcia Padilla is hoping to defer debt payments while negotiating with creditors, much as Detroit was forced to do. The governor warned that Puerto Rico can’t pay its $72 billion public debt as international economists release a critical report on the island’s economy, delivering another jolt to the recession-gripped U.S. island as well as a world financial system already worrying over Greece’s collapsing finances.
Gov. Alejandro Garcia Padilla is hoping to defer debt payments while negotiating with creditors, spokesman Jesus Manuel Ortiz said Sunday night.
Detroit was forced to make a similar move with the help of emergency manager Kevyn Orr, who went on to try and dig Atlantic City out of its own financial hole.
By comparison, notes CNN, Detroit shed $7 billion in debt over the course of its attempt to turn the financial ship around. Puerto Rico’s state-owned power company PREPA is itself $9 billion in the red.
Garcia is expected to air a pre-recorded televised address as legislators continue to debate a $9.8 billion budget that calls for $674 million in cuts and sets aside $1.5 billion to help pay off the debt. The budget has to be approved by Tuesday.
Ortiz confirmed comments by Padilla that appeared in a report in The New York Times published late Sunday.
‘There is no other option. I would love to have an easier option. This is not politics, this is math,’ Garcia is quoted as saying in the Times.
Puerto Rico’s bonds were popular with U.S. mutual funds because they were tax-free, but hedge funds and distressed-debt buyers began stepping in to buy up debt as the island’s economy worsened and its credit rating dropped.
Garcia’s comments will likely not have much impact on Wall Street, said economist Jose Villamil, a former U.N. consultant and CEO of an economic and planning consulting firm.
‘The markets are clear that Puerto Rico is heading to a direction of a restructuring or default,’ said the economist, adding that a voluntary restructuring by bondholders might be the best option.
‘The last four administrations have kicked the can down the road,’ said Villamil. ‘At this point, there is no more can to kick. So we’re going to take some very strict measures and some very profound measures. It’s going to hurt, but there’s no way out.’
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