Puerto Rico is caught between a rock and a hard place
Puerto Rican government officials don’t think the commonwealth can make the payment of $354 million, because it needs the money to keep vital institutions like schools and government agencies running.
Over the past year, Puerto Rico has been no stranger to dealing with creditors. The island defaulted on a debt payment of almost $60 million in August. That marked the first default in the island’s history. That was bad. Ted Hampton, Credit Officer at Moody’s, said missing this deadline could be worse.
“Part of that is about $270 million where the central government of Puerto Rico has provided a guarantee,” he said.
The guarantee means if Puerto Rico misses the payment, bond holders can sue. That translates into lots of money for lawyers, but it’s bad news for the struggling commonwealth.
Timothy Taylor, Managing Editor of the Journal of Economic Perspectives, said the only way for Puerto Rican officials to get out of this economic crisis is through dramatically cutting government spending and somehow fostering a substantial growth rate.
“Because as long as their economy is stagnant, they’re just sort of heading down this road over and over again,” he said.
The government hopes to make Tuesday’s payment but Governor Alejandro Garcia Padilla said he won’t cut vital public services to make that happen.
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