According to ‎Puerto Rico's government, the island will default on at least $37 million of its roughly $1 billion of January 1st debt payments. Puerto Rico's Governor says the island will not make a $36 million payment owed by the Infrastructure Financing Authority and a $1.4 million payment owed by the Public Finance Corporation. The central government will pay the $357 million it owes on "general obligation" debt which carries the strongest legal protections.
The missed payment is not a surprise, according to debt expert Eric LeCompte. ‎"Puerto Rico's government is starting to make choices between their obligation to their people and their obligation to those who hold debt‎," stated LeCompte, who directs the religious development network Jubilee USA. "Unfortunately, without bankruptcy intervention or a negotiated solution, Puerto Rico's financial crisis continues to worsen."
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. Some investment groups holding defaulted debt could 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."
Jubilee USA Network is an alliance of more than 75 US organizations and 400 faith communities working with 50 Jubilee global partners. Jubilee's mission is to build an economy that serves, protects and promotes the participation of the most vulnerable. Jubilee USA has won critical global financial reforms and more than $130 billion in debt relief to benefit the world's poorest people. www.jubileeusa.org