Puerto Rico: A messy crisis in the Caribbean
Puerto Rico's feckless governing class has landed the Caribbean island with debts it can't pay.
Puerto Rico, or "rich port" in Spanish, is having trouble living up to its name. It has just admitted that it can't pay its debts. It owes around $72bn, as much as Venezuela, yet it has only 10% of the population. It has more municipal bond debt per capita than any US state. Chalk that up to the "incompetence and fecklessness of the Puerto Rican governing class", says the FT's John Dizard. This could "get messy".
While everyone works out how to tackle the debt, the power company has gone bust and the water supply is "more tenuous than California's". Public order could be under threat.
The debt is a "mishmash" of so-called general obligation bonds backed by tax revenue and paper issued by electricity, water and highway authorities, as Lex notes in the FT. Because Puerto Rico is not a municipality or a state, it can't officially declare bankruptcy as Detroit did.
Meanwhile, it will have trouble growing its way out of debt, even after some is written off, because high salary costs tied to the US minimum wage dent employment, and US maritime law makes shipping between mainland America and the island pricier than it needs to be. "As the Greek crisis also shows, the inflexibility that comes from being tethered to a big institution makes a bad mess worse."