Puerto Rico Declares a Form of Bankruptcy, by Mary Williams Walsh

Puerto Rico’s many creditors, pensioners, and other beneficiaries are going to get stiffed, big time. Its total debt and pension obligations amount to over $40,000 per Puerto Rico resident. From Mary Williams Walsh at nytimes.com:

Protestors in San Juan, P.R., on Monday. The island has about $74 billion of bond debt, and about $49 billion of unfunded pension obligations to restructure. CreditAlvin Baez/Reuters

With its creditors at its heels and its coffers depleted, Puerto Rico sought what is essentially bankruptcy relief in federal court on Wednesday, the first time in history that an American state or territory had taken the extraordinary measure.

The action sent Puerto Rico, whose approximately $123 billion in debt and pension obligations far exceeds the $18 billion bankruptcy filed by Detroit in 2013, to uncharted ground.

While the court proceedings could eventually make the island solvent for the first time in decades, the more immediate repercussions will likely be grim: Government workers will forgo pension money, public health and infrastructure projects will go wanting, and the “brain drain” the island has been suffering as professionals move to the mainland could intensify.

Puerto Rico is “unable to provide its citizens effective services” because of the crushing weight of its debt, according to a filing on Wednesday by the federal board that has supervised the island’s financial affairs since last year.

The total includes about $74 billion in bond debt and $49 billion in unfunded pension obligations.

While many of Puerto Rico’s circumstances are unique, its case is also a warning sign for many American states and municipalities — such as Illinois and Philadelphia — that are facing some of the same strains, including rising pension costs, crumbling infrastructure, departing taxpayers and credit downgrades that make it more expensive to raise money. Historically, Puerto Rico was barred from declaring bankruptcy. In the end, however, financial reality trumped the statutes, and Congress enacted a law last year allowing bankruptcy-like proceedings.

Puerto Rico has been in a painful recession since 2006, and previous governments dug it deeper into debt by borrowing to pay operating expenses, year after year. For the last two years, officials have been seeking assistance from Washington, testifying before stern congressional committees and even making fast-track oral argumentsbefore the United States Supreme Court.

To continue reading: Puerto Rico Declares a Form of Bankruptcy

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