For Immediate Release
Puerto Rico Plans to Default on New Year's Day
WASHINGTON - Puerto Rico faces a January 1 deadline to make more than $1 billion in debt payments. Puerto Rico's government has sent conflicting messages about its ability to pay, but Puerto Rico's Governor has stated the island will default during its January or May payments. Puerto Rico is shifting funds in order to pay debt in what its Governor calls "fiscal gymnastics." US Treasury Secretary Jack Lew says Puerto Rico is already "effectively in default."
The island has short-term options but has run out of long-term options for paying its debt, according to debt expert Eric LeCompte. "My assumption is that Puerto Rico will make some or all of the debt payments due in January," stated LeCompte, who directs the religious development network Jubilee USA. "Unfortunately, without bankruptcy intervention or a negotiated solution, Puerto Rico defaults by May and the financial crisis continues to worsen."
The island could pay none of its debt, all of its debt or portions of its debt. $335 million is owed in debt issued by the central government itself and public entities owe nearly $700 million in additional payments.
If Puerto Rico does default on some of its debt, it's not clear how investors holding defaulted debt will proceed next. Puerto Rico is obligated to pay the central government or "general obligation" debt first, but, without bankruptcy protection, there is no existing process for prioritizing other debt. Almost 20 different agencies in Puerto Rico hold debt and 12 different entities owe money on January 1. If some or all investors aren't paid January 1, some investment groups will likely sue Puerto Rico for payment.
Puerto Rico's public companies cannot access US bankruptcy protection without Congressional intervention. Attempts to include Puerto Rico bankruptcy protection in the "Omnibus" budget deal failed. Speaker Paul Ryan pledged the House of Representatives will address Puerto Rico's debt crisis by March 31. House Minority Leader Nancy Pelosi and four Senators introduced legislation to block lawsuits against the island until that deadline passes. Republican and Democrat Representatives have introduce legislation in Congress to extend bankruptcy protection to Puerto Rico. The island owes $72 billion in total debt, which the Governor calls "unpayable."
"Unfortunately, Puerto Rico proves why bankruptcy protection is so vital for the United States," noted LeCompte. "When millions of Americans can't benefit from US bankruptcy protection, we are treating them like second class citizens. Defaults are messy and Puerto Rico's people are already paying the price."
Read more about Puerto Rico's January 1 payment.
Read a timeline of Puerto Rico's debt crisis.