Puerto Rico sought a form of bankruptcy relief in federal court on May 3, the first time in history a state or territory of the U.S. has taken such measures. The territory built about $123 billion in debt, including $74 billion in bond debt and $49 million in unfunded pension obligations. The following court proceedings could help relieve some of the financial stress, and give Puerto Rico a chance to start anew.
“I wasn’t really into politics and economics but I did know that Puerto Rico was not good at managing its own money,” sophomore Diana Rodriguez said.
Puerto Rico was historically banned from declaring bankruptcy, but reality overcame law as Puerto Rican Governor Ricardo Rossello petitioned for relief under Title III of the Promesa law. The Promesa Act–a federal law enacted by the Obama Administration–was designed to help Puerto Rico shed some of its crushing debt. Cities and countries are able to declare bankruptcy, states and territories however, cannot due to the potential economic impacts such a title could bring. Such as the plummet on the value of the state’s bonds, mass layoffs and more.
Puerto Rico has lived in a state of painful recession since 2006, and the financial crisis has now resulted in the territory foregoing pension payments to government workers, putting public health and infrastructure projects aside and being unable to provide adequate services to its citizens. According to the New York Times, the so-called “brain drain,” in Puerto Rico is expected to intensify as the next generation of innovative youth leave the island for more opportunity.
“Most Puerto Ricans do not have a proper job,” Rodriguez said. “They depend on the government, like coupons and things for help.”
Daily discount coupons that cut prices to a fraction of their normal value have become essential to everyday life in Puerto Rico. The island has also lost 20 percent of its jobs since 2007 with 46.2 percent of citizens below the poverty line, according to Bloomberg Politics.
Puerto Rican attempts to persuade their creditors to cut the debt failed, which ultimately landed them in court on Wednesday after lawsuits were filed against the island. Governor Ricardo Rossello issued a statement in which he stated his hopes for reaching an agreement in court, much to the opposition of Washington D.C.
Many Republicans, including President Donald Trump, have condemned possible debt relief for Puerto Rico, saying the island had already received many federal subsidies for its health system, public housing and more. The Obama Administration warned of the probable humanitarian crisis that would arise if Puerto Rico was not given extra help to pay back debt.
“[In Puerto Rico], we do not have Democrats and Republicans, we have those who want to be independent and those who do not,” Rodriguez said. “They do not have much faith regarding Trump because he is Republican.”