Puerto Rico has defaulted on its debt obligation for the first time in its history.
On Monday, Puerto Rico paid a mere $628,000 toward a $58 million debt bill that was due to creditors of its Public Finance Corporation (PFC) in a risky move that will intensify pressure on creditors for a broader debt renegotiation, and will likely make future borrowing far more difficult.
Although the island did make a payment on the interest of about $628,000, it said that it lacked sufficient funds to make the full payment.
The move by Puerto Rico will hurt the island’s residents, and not Wall Street, as the debt is mostly owned by ordinary Puerto Ricans through credit unions.
Melba Acosta Febo, the President of the Government Development Bank for Puerto Rico, which owes the money, said in a statement:
“This was a decision that reflects the serious concerns about the Commonwealth’s liquidity in combination with the balance of obligations to our creditors and the equally important obligations to the people of Puerto Rico.”
Puerto Rico is carrying a hefty debt load of over $72 billion, which has raised serious questions and concerns about its financial future.
Greece Is Not Alone: Puerto Rico Bonds Tumble As Governor Calls For Debt Relief http://t.co/adO6h2Q359
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The bank has attributed the decision not to make the full payment due to a failure by the legislature to appropriate the money.
The default is a historic moment in Puerto Rico’s economic “death spiral,” a term the Governor of Puerto Rico, Alejandro García Padilla, has used.
The Governor said that the total debt was “unpayable” and is calling for a broadly based debt moratorium; details are set to be released on September 1.
Puerto Rico has around the same amount of outstanding debt as New York, however, its economy — worth about $69 billion — is only a fraction of the Empire State’s $1.2 trillion economy.
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