The archipelago is threatened with several defaults without urgent action by the United States Congress.
Puerto Rico has taken another step in the debt crisis that the island has been going through for almost a decade now. The governor of the territory, Alejandro García Padilla, has announced on Sunday, May 1, the government development bank (GDB) does not repay a debt of 422 million matured (€ 366 million).
“Faced with the inability to meet the demands of our creditors and the needs of our people, I had to make a choice,” he said in a speech, adding, “I decided that your needs basic were more important than anything else. “Schools and hospitals were in fact threatened with closure for lack of funds.
The territory of 3.5 million people, which has the status of the state, associated with the United States, faces a huge debt of 72 billion dollars (nearly 62.5 billion euros). If the moratorium just announced is not the first fault of the island – it is, in fact, the third since 2015 – it is by far the most important.
Puerto Ricans flee en masse
At the root of this situation, the decision of the United States in 2006 to eliminate the tax credits granted to companies to encourage them to invest on the island. The end of this tax benefit has led to the departure of thousands of jobs. The 2008 financial crisis only accelerated this process.
Faced with a completely destabilized economy, the territory had no choice but to resort to debt consolidation loans Downtownstadium to cover budget deficits. The country has also been slow to make structural reforms. For example, the cost of labor weighs on job creation. The minimum wage is thus aligned with the United States, while the median household income is 65% lower.
This leap forward is now reaching its limits. Today 45% of the population lives below the poverty line (against 16% in the United States as a whole), unemployment exceeds 12.2% (against 5%). Suddenly, Puerto Ricans flee en masse. Every week, more than 1,500 people leave for the United States to escape the economic crisis.
This hemorrhaging of the population only reduces a little more tax revenues already badly in point. Now about one-third of the tax levied is used to repay the debt. In this context, the state can no longer provide basic public services while continuing to repay its creditors.
The situation has become all the more uncontrollable as the bonds issued by Puerto Rico benefit from a federal tax exemption. Any US holder is entitled to it as if it were any debt issued by a federated state or a municipality in the United States. Despite the high risk of these investments, many hedge funds quickly filled their portfolios, attracted by high returns and tax-free returns.
But this legal alignment of Puerto Rico with the United States has its limits because the territory does not have the possibility, contrary to what was done for the municipality of Detroit (Michigan) in 2013, to put under the protection of Chapter 9 of the US Bankruptcy Code.
The governor has been asking Congress for months how to restructure his debt. “We do not want a financial bailout, and we have not been offered a financial bailout, what we want is a restructuring procedure that will cost nothing to US taxpayers, ” Garcia Padilla said.
A text is currently in preparation, but it is still at a standstill. House Speaker Paul Ryan urges Republicans and Democrats to quickly find a framework in which Puerto Rico would be able to restructure its debt, failing which the US could be forced to bail out the territory.
While the former are particularly in favor of substantial reductions in pensions, the latter advocate less radical solutions. Time is short because the next date of maturity for an amount of $ 2 billion is set to 1 July. “For now, we do not plan to have the money,” warned Garcia Padilla.