The United States is facing its own Greece moment as Puerto Rico faces similar debt questions. One key difference is that it seems unlikely that Puerto Rico will leave the United States, potentially leaving American citizens on the hook to foot the bill for the US territory of Puerto Rico.
On June 28, Puerto Rico’s governor Alejandro García Padilla called the island’s debts “not payable” and that in order to avoid a “death spiral” the country would need to refuse payment. Lenders lent the poor government money very cheaply, and the government did not use the money to invest. Puerto Rico and US will likely not sever political and economic union, like many say Greece could. Thus, Puerto Rico becomes a US liability. (What’s likely, to be sure, is that Greece will not leave the European Union)
Puerto Rico is a self-governing US territory, which has enjoyed a US law that creates a tax subsidy for Puerto Rican debt. Middle class and well-to-do US people thus lent money to Puerto Rico, and Puerto Rico accepted the terms, then spent money on a considerable welfare state.
In 2006, economic strife came to Puerto Rico and Puerto Rico could not depreciate its currency due to the US ties. A brain-drain brought Puerto Ricans to the US. The last 10-years in Puerto Rico have been marred by tax hikes, spending cuts, emigration and increasing interest rates, and things have only become worse for Puerto Rico as the 50 states fall into economic strife as well.
Puerto Rico has official liabilities of $72 billion. Both California and New York have more debt than Puerto Rico, though Puerto Rico is smaller, home to the population of San Diego county. Puerto Rico’s population continues to shrink, as the Economist reported in 2013: “…in America’s 50 states the average ratio of state debt to personal income is 3.4%.” The ratings agency Moody puts Puerto Rico’s at 89%. The most indebted state according to this measure is Hawaii, which has a 10 percent ratio, according to the Economist.
Puerto Rico’s population is declining at the fastest rate in 60 years, according to PEW research. The trend started in 2006. From 2011 to 2013, Puerto Rico’s net population fell by 50,000 people per year, with job-related reasons being cited by 42% as a reason for leaving. Young people are leaving as well.
“Structural problems, economic shocks and weak public finances have yielded a decade of stagnation, outmigration and debt,” the report said. “Even if there is no intensification in economic problems, which is a big if, the [Puerto Rico] Planning Board projects that the population will continue to fall through 2020.” Official unemployment is 12.4% which is twice the national jobless rate.