Americans used to like Puerto Rico, a United States territory in the Caribbean, not only for its white, sandy beaches but also because of its high-yield, tax-free bonds.

Author: Tiziana Barghini

In addition, because Puerto Rico is not a US state, it cannot go bust and declare Chapter 9 municipal bankruptcy.

All this worked well until the Commonwealth borrowed more money than it was able to repay. Plagued by high unemployment and low economic growth, Puerto Rico is now unable to repay $72 billion it amassed in high-yield municipal bonds over the years.

No bankruptcy is nice, but in this case, there is an additional legal complication. Given its special status, Puerto Rico cannot restructure its debt in court. Since 2015, Puerto Rico’s governor, Alejandro García Padilla, has lobbied heavily for a legal solution allowing the island to restructure its debt before running out of money. A new bill is in the works and is expected to be approved by the end of March, before the island has to face major bond repayments. The draft is based on a proposal by the US Treasury to either extend the current municipal bankruptcy Chapter 9 law to the territories or to create a specific measure for Puerto Rico.                 


No comments yet

Add a Comment

You must be a registered user with Global Finance Magazine to comment.

Forgot Password?