Puerto Rico Inadequate To Pay Off Debts — Financial Crisis Hits New Stage

By Lovely Pao

Aug 04, 2015 11:37 AM EDT

Puerto Rico was inadequate to pay off its debt due to Public Finance Corp (PFC) bonds. The island's Government Development Bank (GDB) forked out only $628,000 of the $58 million debt. The agency stated that the decision "reflects the serious concerns about the Commonwealth's liquidity" and the urgency to ensure "essential services (residents) deserve are maintained."

GDB head Melba Acosta said, "Due to the lack of appropriated funds for this fiscal year, the entirety of the PFC payment was not made today."

According to USA Today, Puerto Rico has an outstanding arrears of $72 billion which is a lot bigger than Detroit's bankruptcy of $20 billion two years ago and a portion of Greece's $350 billion in liabilities. Unlike Detroit though, Puerto Rico is not allowed by law to declare bankruptcy. In addition, the federal government will not be able to rescue the island as what the International Monetary Fund has done to Greece, as stated by Jack Lew, Treasury Secretary.

Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics also commented, "There's no big daddy to rescue Puerto Rico."

Meanwhile, as per Huffington Post, a spokesperson for OppenheimerFunds said, "We are disappointed that the Commonwealth of Puerto Rico did not make its scheduled payment of principal and interest today."

"We will vigorously defend the terms of the bond indentures."

Lord Abbett via its lead portfolio manager Daniel Solender refused to comment on PFC holdings but said he longed for a reconsideration for the non-payment by Puerto Rico. Franklin Templeton has likewise declined to give an opinion.

Gov. Alejandro Garcia Padilla has issued a warning last July that the state agencies and government were incapacitated to repay the $72 billion in public arrears that hover the U.S. territory, which has struggled for almost a decade of economic collapse, as per ABC News.

Holders of PFC debt include include OppenheimerFunds, Lord Abbett and Franklin Templeton as per Reuters.