Published: May 5, 2016
Business Editor Emeritus
Puerto Rico defaulted on $400 million dollars of debt that it had borrowed from the public on Monday. This has been viewed as a grim sign by the investing public for the future of all bonds in the Puerto Rico area.
Puerto Rico has almost two billion dollars worth of payments due in the coming months, which leaves the question as to where will they come up with these funds. The Puerto Rican government is already trying to reconstruct some of their debt and has already reduced nearly 900 million dollars of debts that it owed to Large hedge funds to 513 million dollars. This represents a huge loss for the hedge funds who are afraid that if a default comes they will get even less than the renegotiated amount.
The current default has caused major infrastructure problems for the Puerto Rican government because they had to limit the number and amount of all withdrawals from the government’s bank. This has caused issues for all government agencies that rely on basic access to cash. One example of this is that the postal service and police need to fuel their vehicles. In a short time there will definitely be payroll issues that will arise.
The entire bankruptcy issue is a very specific case that has not been seen in the U.S. before. That is because Puerto Rico is not a state, and it does not have access to the federal bankruptcy courts. This is only worsened by the fact that the International Monetary Fund will not recognize or assist Puerto Rico because Puerto Rico is not a country. Puerto Rico is relying on the United States government to change the rules and legislation in order for Puerto Rico to efficiently reconstruct their debt.
If Puerto Rico cannot get the proper support, it will cause major problems for its government and the investors trust. It could also lead to doubts about the U.S. government’s backed securities.
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