Puerto Rico Presses for Debt Relief as Economy Unravels

Secretary of the Treasury Jacob Lew will meet with Puerto Rican officials on Wednesday to address the island’s mounting debt crisis. Puerto Rico has defaulted twice on its payments and it suffers with a high public debt of $72 billion, and the secretary hopes that the U.S. Congress will act by March of this year. The commonwealth’s deficit expects to stretch from $14 billion to $16 billion in the coming five years.

Secretary of the Treasury Jacob Lew will meet with Puerto Rican officials on Wednesday to address the island’s mounting debt crisis. Puerto Rico has defaulted twice on its payments and it suffers with a high public debt of $72 billion, and the secretary hopes that the U.S. Congress will act by March of this year. The commonwealth’s deficit expects to stretch from $14 billion to $16 billion in the coming five years.

On the surface, it would appear that Puerto Rican authorities are resorting to fear mongering when it comes to highlighting the dire state of the Caribbean island, but this is an instance where hysterics are fully appropriate. Not only is Puerto Rico suffering from the weight of crushing debt, but also a 45 percent poverty rate and a drastic decline in population as people flee the island in droves.

Despite numerous pleas for help, the federal government is unwilling to lend significant support, but President Obama supports affording Puerto Rico certain bankruptcy chapter 9 protections. Congress remains hesitant in order to protect investments, and it would damage the federal government’s image and credibility in the eyes of investors if the commonwealth defaulted on its obligations.

Further, taxpayers and politicians remain skeptical of saving Puerto Rico, as bailouts from the economic crisis remain embedded in the American consciousness. Moreover, federal law prohibits bankruptcy protection for states and territories, with the exception of cities, but Puerto Rico was squeezed further when denied bankruptcy rights for municipalities under a 1984 federal law, notes Fox News.

Faced with few options, authorities scramble for a solution as it faces debt payments in the coming months. Puerto Rico hopes to work with creditors, but no one knows if the finance community will budge, and whether the commonwealth can pay its debts on time in the future. The governor conceded that the government is out of money and it has resorted to drastic measures such as withholding tax refunds and issuing IOUs to suppliers.

The government released a plan in late 2015, but it only covered a portion of the debt balance, and the plan calls for such feel-good actions as merging departments and maintaining a hiring freeze in the public sector. All parties involved know that such steps will not prove aggressive enough to turn things around, and the only viable solution would be to foster structural reform policies to get the ailing economy moving again, but such an important solution remains out of reach as the bills come due. Puerto Rico intends to honor its debt payment in February, but officials will have a much harder time making payments in May.