Tuesday, August 4, 2015

KAMIKAZE STRATEGY IN PUERTO RICO

The American Island territory of Puerto Rico has defaulted on a $58 million bond debt payment. Puerto Rico’s debts have become unsustainable

The government of the island failed to appropriate the funds. Governor Padilla says the they cannot pay the $72 Billion public debt amongst rising unemployment and a contracting economy. The island made a payment on the interest of about $628,000, it said it lacked the funds to pay the full amount.

The island is not a sovereign nation nor a an American State, which means the economic levers at its disposal are quite limited. The situation could spiral out of control if they can not  negotiate some kind of restructuring plan.  If Puerto Rico were a state, it could  send its cities, school districts and other units of government into Chapter 9 municipal bankruptcy. 

The financial troubles mean higher energy bills, a crumbling infrastructure, and a middle class that is emigrating  in droves.

The default could be considered a warning shot to creditors to get serious with some form of repayable restructuring plan or face getting stiffed for the entire debt load.

The bottom line is that an American territory with 3 million American Citizens is in default. I do not see how the Americans can just let it play out without intervening and committing to help. So far they have refused to take a  political , social or moral responsibility. Perhaps they will not dodge a  a legal responsibility.

With  precarious economic situations in states, including Greece and Ukraine how far off is  a major debt restructuring?







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