Puerto Rico is going to default on its (quite large) debt at the end of the day. (Article here.) Seems like it’s a given that this is going to happen. The territorial governor has said repeatedly that they just don’t have the money.
Anyone want to speculate on the fallout?
The fallout will consist of a bailout from the federal government followed by Congress curtailing PR’s home rule powers until such time as they are judged competent again.
What do I get if I win?
Bargain-basement DonQ rum?
Is there actually any talk of a bailout? I haven’t heard it. Plus, it seems to me that selling a bailout to Congress would be something just short of physically impossible. If you give Puerto Rico a ton of money to pay its debts, you absolutely will get all 50 states lining up to have their own debts paid off, and how do you justify saying no to them after you said yes to PR?
Puerto Rico isn’t sovereign, it’s a devolved federal territory. A Puerto Rican default is essentially a default in an agency of the federal government. That’s a very different situation than states’ debt.
Well, the deadline has come & gone. They defaulted. I guess we’ll see how much trouble ensues.
The federal government has already stated previously they won’t bailout Puerto Rico.
Thanks, you want a devolvement of the political situation to the way it was prior 1950s. 
:dubious:
Yeah but they always say that at first. Give 'em a few weeks.
Still wouldn’t be sure. Besides that the island is unable (and was denied) to declare bankrupty like what happened in Detroit.
They were careful to pick a bond that explicitly wasn’t backed by the Government. The Government itself didn’t default-just the Gov’t agency that issued the bonds. It looks like the only one’s to be hurt would be the insurance companies who insured the bonds (it there is such coverage). In all, barely even news.
As for a federal bailout-that seems extraordinarily unlikely. I haven’t heard anyone anywhere offering to consider the idea.
There’s no mechanism for states to declare bankruptcy. Congress would need to create a new chapter in the federal bankruptcy laws to accomodate this. I presume the situation for territories would be the same. It’s not as simple as passing a resolution saying “OK, Puerto Rico can declare bankruptcy. We’re cool with that.”
There was a bill in the Senate that would amend Chapter 9 to allow Puerto Rico to declare bankruptcy, but it didn’t go anywhere.
In any case, I see three possible solutions:
The federal government buys a shitload of Puerto Rico’s toxic debt instruments through a special appropriation,
The federal government enables bankruptcy for PR through new legislation, or
Puerto Rico just doesn’t pay, can not finance any further operations, and absent any kind of enforceable restructuring plan, their government and utility companies completely collapse, and a power struggle ensues between zombies and werewolves.
Options 1 or 2 seem the most palatable, but both require the cooperation of Congress. I don’t think the federal government really wants a failed territory on their hands; the expense of dealing with zombie hordes outweighs the pain of a bankruptcy or other kind of restructuring.
friedo, please. Not zombies and werewolves… chupacabras, man!
(though truth be told I’ve heard no sightings reported in like 4 years…)
Working in politics down here I’ve been getting bombarded for two years with the impending debt disaster scenarios and the Cunning* Plan Of The Month to deal with it to the point I’m numb.
(* but doomed)
Allright first the issue of Chapter 9 Bankruptcy: this is the part of the code that deals with chartered municipalities and state-owned corporations, NOT the state governments per se, thus Detroit. For some reason nobody can explain, in the mid 1980s the language in the statute was amended in such a fashion that now Puerto Rico’s public dependencies were explicitly out of the scope. People are trying to figure out what happened there. So the bills in Congress would equiparate treatment and allow for municipal or state-owned-corporation bankruptcy.
*Thing is… *that many of the “state corporations” in Puerto Rico are corporations in paper only, being run IRL as government programs commanded by an agent of the sitting Governor – and in many of these cases, their “corporate” debt was issued with the Commonwealth as guarantor. This was of course a clever ruse to make it so under normal circumstances the debt for their projects would not be counted towards the General Obligations debt but if the “corporation” goes tits up the creditors have already advised they’ll sue to the effect that they entered the deal under the premise of “no bankruptcy”.
Meanwhile, as to the handling of the general debt: upon the adoption of the Commonwealth constitution in 1952, and the addition of a debt limit amendment in 1964, one of the elements that devolved upon PR was the credit of the polity – Under the Commonwealth’s constitution there are
(a) a fixed limit on how much obligation of principal and service can be incurred as General Fund Obligations in a fiscal year, of 15% of the average of the last two years’ Revenues; and
(b) a constitutional mandate that if revenues are insufficient to cover the budget, payment and service of the GO debt must be covered first, and then you deal with the rest of the budget.
Now, these and a balanced budget mandate should have been good brakes on the situation, except that under a set of PR court rulings and other legal and regulatory jiggerypokery, the balanced budget mandate was interpreted to refer to expenses must equal available resources, not just revenues, and credit is an available resource as long as you did not hit the hard limit, so the state has been running a disguised deficit, essentially redefining what is on or off budget and doing repeated refinancings of the “off budget” entities to lower and stretch the payments and have as much cash as possible in hand for paying current expense (and spreading pork, natch).
Well… over the last 10 years the economy tanked, we are having a huge loss of workforce and thus of tax base, and the Treasury is now upside down. The General Fund revenue is not generating enough cash flow to pay as we go ***both ***the debt service and current operations. The last administration, faced with the credit raters (who had previously been happilly AAA-ing anything made of paper with numbers on it, remember?) suddenly getting all righteous in the middle of the Great Recession, was forced into layoffs of thousands of public employees to bring things under control and it cost them reelection. Between that and the Stimulus funds they bought an extra 6 years, but there has been no real recovery so the debt exploded further. The current administration has stated that they’ll die on the hill of no layoffs of public employees: for two years they’ve done over 90 tax or fee increases, incentive programs, benefit cuts, let the bonds get junked then taken over by “vulture” hedge funds, massacred my pension fund, cleaned out every cash-on-hand reserve any agency or dependency had… and still not enough.
And meanwhile the White House and Fed hace been hinting that they lean towards the “Drop Dead” option. (Why? Because primary season is coming and the Lunatic Wing of American politics would likely crucify anyone who even seems to be in the same building as a bailout) So they have decided to announce, in a political move, that rather than fire teachers or reduce medicaid rolls or do a shutdown, they’ll rather ignore the constitution, default, and seeya in court, what ya gonna do, bring Blackwater to seize the harbor?
Meanwhile the Governor, LtGov and entire legislative leadership were at D or R political junkets all last week trying to get some sort of signal but none of the headliners are really sticking their necks out on this. If the debt is not serviced, recurrent revenue IS enough to pay current ops expense on a cash-as-you-go basis… for a while, but it’ll catch up soon enough and then come the chupacabras or zombies, or SOMEONE blinks, be it DC or Wall Street.
The more conspiratorially inclined among us would claim that the current administration (pro-statu-quo) is deliberately letting this happen in the view of the world in order to poison the well for any statehood petition for the next 30 years (under the assumption that after increasing the sales tax from 7% to 11.5% and rogering the pension fund, they’ll lose the next election to the pro-statehood opposition and they only want to leave them scorched earth). Or that they actually want a Federal Control Board named so when the corrective measures are taken they can point to some “outsider” from the Big Bad Feds as the source of the pain.
Now if you’ll excuse me I have to go OD on antidepressants…
Let’s not forget that the governments that kept taking credit and not helping develop enough local economy were/are from the two main political parties (pro-statehood and pro-status quo). So both are equally guilty of leading the island to the current problem. And seriously, considering how the things were heading and are going, I doubt if the pro-statehood candidate had won in the last election, he would have done any different than the current one (I think they’re both the same).
Luis? He’d probably had fired 12 thousand more people but only have bought an extra year or two of mercy, tops (no more Stimulus funds, see). And the pension fund reaming was designed by his own appointee to Director of Pensions, whom the new Gov retained for almost a year to finish his plan.
He *would *have been getting general strikes for the last two years, though…
Oh, I’m one wishing there would be more strikes, period. 
But, are there enough drones in the world for the task…?
Instead people marched… to the opening of The Mall Of San Juan. “We need to fight these polici… Whoa! Look! Nordstrom’s!!!”
The Denial is strong in these ones…
