Puerto Rico Defaults On Debt Payment

Puerto Rico Defaults On Debt Payment

If the United States wants to see the economic future, all we have to do is look at Puerto Rico. The American territory is officially defaulting on its debt payments, and wants a bailout from Congress in order to regain solvency.
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The island was unable to make a $422 million debt payment due Monday. It’s another alarm bell of how bad the situation is getting on the island.

Governor Alejandro Garcia Padilla calls it a “humanitarian crisis,” which a step above an economic emergency. He claims he is prioritizing paying Puerto Rico’s police and teachers over Wall Street.

“I had to make a choice. I decided that essential services for the 3.5 million American citizens in Puerto Rico came first,” the governor said in a speech Sunday.

This is the third time the island has defaulted on bond payments. The island paid the interest due Monday, but not the principal amount, resulting in a default of about $370 million, Puerto Rico’s largest yet.

Puerto Rico has a debt of more than $70 billion, and after digging this hole, they are now saying that they simply can’t repay it.

The governor had been warning since last year that the island’s overall public debt of more than $70 billion is unpayable.

Puerto Rico has been suffering through more than a decade of economic decline since Congress phased out tax cuts that had made the island a center for pharmaceutical and medical equipment manufacturing. Garcia’s predecessors and the island legislature borrowed heavily to cover over budget deficits, causing a debt spiral that has already prompted several smaller defaults.

Creditors have accused the government of exaggerating the crisis to avoid upcoming payments such as $780 million due July 1 that includes general obligation bonds, which are guaranteed by the constitution.

The governor wants to Puerto Rico to be allowed to declare bankruptcy and restructure their debts, which is not currently legal under federal law for a territory. Congress is unhappy with the idea of another bailout, on both sides of the aisle, and points to government mismanagement.

While this debate continues, and the debt goes unpaid, Ed Morrissey at Hot Air points out the natural consequence of an insolvent Puerto Rico – economic refugees. And since these are people moving from an American territory to the mainland proper, they have every chance to get here because they are already legally United States citizens. The population of Puerto Rico is approximately 3.5 million, and many are already here or coming. Can the stagnant American economy – despite the Democrats’ claims to the contrary – really absorb that many new workers, all with legal status, looking for jobs?

And if Congress doesn’t get its act together on spending, tomorrow Puerto Rico’s insolvency could be our own.

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