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News / Nation & World

Economists say Puerto Rico needs bankruptcy option

It may otherwise face Greece's dilemma

The Columbian
Published: July 1, 2015, 12:00am

SAN JUAN, Puerto Rico — Puerto Rico’s financial future hung in limbo Tuesday as economists and officials warned that the U.S. territory could head down Greece’s path if it is not allowed to declare bankruptcy as it struggles with $72 billion in public debt.

The island prepared to close a troubled fiscal year amid intense investor scrutiny just hours before the first of several multimillion-dollar debt payments is due. It remained unclear whether the government would meet the roughly $400 million obligation due Wednesday, obtain yet another extension from creditors, or default.

Gov. Alejandro Garcia Padilla has said that the overall debt is unpayable and that he will seek a moratorium on payments, although it is still unknown whether bondholders will agree to that or opt to resolve the issue in court.

Unlike Greece, Puerto Rico cannot seek emergency financing from an institution because it’s a U.S. territory. Some economists say that leaves bankruptcy as the most financially sound alternative, something U.S. rules do not now allow.

“Both are in desperate need of a solution, but neither can access the solution they’re asking for, which is a bankruptcy process,” said Eric LeCompte, executive director of Jubilee USA Network.

He noted that if Puerto Rico were considered a developing country, it would be the eighth most heavily indebted country in the world. If the island does not obtain the right to declare bankruptcy, it will either restructure the debt or go into default, he said.

Critics of allowing bankruptcy said that would be unfair to holders of Puerto Rico bonds.

The “proposed solution comes at the expense of seniors and retirees who invested in the island in good faith. Moreover, it does nothing to improve the reckless and even corrupt policies and practices that have left the island all but bankrupt,” the 60 Plus Association, a Virginia-based senior rights group, said.

Puerto Rico’s governor plans to establish a team to come up with a fiscal and economic reform plan to help jumpstart the island’s economy, which has been in a recession for nearly nine years. The team has until Aug. 30 to develop the plan, which requires legislative approval.