Puerto Rico has debt problems; it’s even been called the “Greece of the Americas.” On Monday, the Puerto Rican government is due to repay another $60 million to bond holders, and the government is already preparing statements, assuming it won’t have the cash.
It wouldn’t technically be a default. These are moral obligation bonds, so they don’t have legal repercussions for nonpayment. But it’s not just banks and bondholders who are affected.
The “crisis has hit the island pretty badly,” says Mariana Giusti, a Puerto Rico native whose family and friends still live there. She spoke from Peru, where she is working on a Ph.D. in Latin American studies. “People are just trying on the day to day to just make ends meet. I think things have been getting progressively bad over the past couple of years. So the news that we have to declare bankruptcy doesn’t come as a big surprise.”
But Puerto Rico can’t file for bankruptcy, even if the commonwealth wanted to. Federal bankruptcy laws block it from that option.
Last week, the Hilton Condado Casino, which had been on the island for 40 years, announced plans to close. But the government is still hoping tourism will save the day. Mario Mercado, who will begin a sociology doctorate at Rutgers University in New Jersey next year, spoke from San Juan, the Puerto Rican capital.
“Tourism is actually a hot-button issue,” he says. “Since the government and the public funds are running low, they are now depending on private investors to develop basically everything.”
Mercado comes from the small town of Arecibo, and he says most of his city is depending on private developers to come in and fund tourist sites. “And through some calculation, they think trickle-down economics will help the Puerto Rico situation,” he says. “Tourists coming in, spending money here, and then small business owners will benefit from this.”
In other words, the commonwealth and its cities want companies moving in instead of taking off.
Even if Puerto Rico makes a debt payment next week, it’s not out of the woods. Its debt sits at about $72 billion.
Puerto Rico is also in the middle of a historic drought. San Juan has been forced to ration water to many residents. Mercado says there’s also a lot of uncertainty right now because the school term is set to begin. “How do you run a school without water?”
Many Puerto Ricans have left the island for the mainland. Giusti says she would love to return to her native home. “But for personal and professional reasons, I think it’s a bit of a long shot,” she said. “But I kind of have the hope that at some point it will be possible to go back to the island.”
The latest census projections say Puerto Rico will lose another half a million people by 2050.
- 1976: Puerto Rico gets a tax break that enables American companies to set up shop in the commonwealth without paying federal taxes.
- 1996: Congress gets rid of the tax break, phasing it out over 10 years.
- 2006: Puerto Rico sinks into a recession, and many businesses leave. Manufacturing jobs drop by almost half.
- 2007: The Great Recession hits, and three Puerto Rican banks go under.
- 2015: Puerto Rican Gov. Alejandro Garcia Padilla declares the territory’s debt “unpayable.” Puerto Rico avoids default in July by paying back about $1.3 billion for bonds and loans.