Greece Is Not Alone: Puerto Rico Bonds Tumble As Governor Calls For Debt Relief

“Prices on Puerto Rico’s newest general obligations sank to record lows after Governor Alejandro Garcia Padilla said investors should be prepared to sacrifice if they want the cash-strapped island’s economy to grow,” Bloomberg reports.

“With two days left in Puerto Rico’s fiscal year, the commonwealth is struggling to pass a budget that would allow it to make payments on a $72 billion debt load. Investors should work with the commonwealth to reduce its obligations, Garcia Padilla told the New York Times in an interview,” according to the news agency.

“The debt is not payable,” the governor said. “There is no other option.”

Puerto Rico needs to restructure its debts and should make reforms including cutting the number of teachers and raising property taxes, a report by former International Monetary Fund economists on the Caribbean island’s financial woes said.

The report, which was obtained by Reuters, gave a damning review of how Puerto Rico has arrived at its current state, which it said requires both structural reform and debt restructuring to fix.

“Puerto Rico faces hard times,” the report said. “Structural problems, economic shocks and weak public finances have yielded a decade of stagnation, outmigration and debt… A crisis looms.“

“Everything that touches Puerto Rico, the debt, the monolines, the banks, will all sell off pretty aggressively,” said Daniel Hanson, analyst at Height Securities.

The analyst added he expected restructurings of debt but thought the island lacked the political will to restructure general obligation debt.

Puerto Rico, officially the Commonwealth of Puerto Rico is a United States territory located in the northeastern Caribbean, east of the Dominican Republic, and west of both the United States Virgin Islands and the British Virgin Islands.

Projection of the Caribbean Sea with Puerto Rico in green. Courtesy of Wikipedia.