This page has been archived and commenting is disabled.
Puerto Rico Faces Default, Government Shutdown On July 1
Late last month we outlined what is an increasingly desperate fiscal crisis in Puerto Rico. The commonwealth faces a July 1 payment of $630 million on its GO bonds and without furloughing some public sector employees, it’s not clear that the payment can be made, setting up a possible default.
“They really aren’t going to have the cash. There’s no tax you can legislate today that will generate enough income by the time you need it,” Sergio Marxuach, public-policy director at the Center for a New Economy in San Juan, told Bloomberg earlier this month.
In total, Puerto Rico owes some $73 billion, the result of persistently covering deficits with debt even as economic activity continued to slow. On the heels of last month’s failed attempt to push through tax reform, lawmakers and Governor Alejandro Garcia Padilla are now scrambling to pass a new proposal that calls for a sales tax increase and $500 million in spending cuts as part of a 2016 budget which Puerto Rico desperately needs to pass by a July 1 deadline in order to resurrect a $2.9 billion oil-tax bond offering. The proceeds from the proposed deal would go towards repaying a loan from the Government Development Bank which may run out of money by the end of September if the new issue doesn’t materialize.
Budget cuts aren’t very popular these days, especially among students, as the recent protests in Montreal and Quebec make clear. In essence, the anti-austerity bug has spread outward from Europe and was on full display last week in Puerto Rico when college students took to the streets of San Juan.
Here’s a clip:
As unpopular as the current set of measures looks to be, Bloomberg reports that further belt-tightening will likely be needed to bring the situation under control. Here’s more:
Official projections of economic growth haven’t panned out. An index tracking monthly economic activity has registered 27 consecutive year-over-year declines. March unemployment, at 11.8 percent, was more than double the U.S. rate. With revenue well below forecasts, the commonwealth has a $191 million budget gap it must close by June 30. Procter & Gamble Co. plans to close its only plant on the island within 12 months, Jeff LeRoy, a spokesman for the consumer-product maker, said in an interview. The facility employs 230 people.
The May 14 proposal by Governor Alejandro Garcia Padilla and legislative leaders to cut spending also would raise the sales tax temporarily to 11.5 percent from 7 percent. Even if the legislature approves the measure, it won’t be enough. The commonwealth, the largest employer on the island, needs to shrink the government and boost private-sector jobs, said Secretary of Economic Development Alberto Baco Bague.
The island must exercise financial self-reliance as yields on its general obligations surpass 10 percent, effectively blocking access to capital markets. The Government Development Bank, which lends to the commonwealth and its localities, may run out of cash by Sept. 30 unless it can sell $2.9 billion of oil-tax bonds, according to its latest quarterly filing. The filing said the government may place a moratorium on debt payments in fiscal 2016 if it can’t cut spending or generate more revenue.
If lawmakers are unable to pass a 2016 budget by the end of next month, Puerto Rico faces a government shutdown, but perhaps more importantly, will likely have trouble convincing hedge funds to purchase its bonds. The commonwealth has become increasingly reliant on hedge fund financing as traditional investors fear a looming default.
For his part, Jeff Gundlach is optimistic. The DoubleLine chief doubled his Puerto Rico GO bond holdings in Q1, but later told Reuters that the position still did not qualify as a "big bet." Perhaps that's a good thing, because as the following chart shows, the market seems to believe the commonwealth is about as credit worthy as Greece.
»
- 15704 reads
- Printer-friendly version
- Send to friend
- advertisements -
Better meet with Krugman.
Another garbage state ready to get flushed into the bankruptcy toilet. Cue Obammy to dump it on taxpayers!!!
Woo, hoo!!!! Freedom begins in Peurto Rico on July 01.
Government shuts down every Friday late afternoon and opens Monday mid-morning on the mainland. Somehow everyone does just fine. Everyone not living in a leftist paradise inner city where there is PLENTY of government 24/7, that is.
Get Rothschilds on the blower!
My last pay check was $9500 working 12 hours a week online. My sisters friend has been averaging 15k for months now and she works about 20 hours a week. I can't believe how easy it was once I tried it out. This is what I do... www.jobs-review.com
cant they borrow it from greece.....
A LOT OF SHIT IS GOING DOWN IN JULY.
Jade Helm anyone?
You cannot possibly imagine what the elite have planned, a real shit storm...
http://i3.kym-cdn.com/photos/images/original/000/249/972/802.jpg
We're going to need a bigger bowl.
Jesus H.
No self respecting Manhattanite wants to be in NYC the first Saturday in June, ever.
Fucking cockroaches.
Wonder if they will board up 5th Avenue again.
Puwheretoh Reekahn Parade baby! Let's light some phone booths on fire to celebrate!
The other 56 states will never let this happen. They will unite and stand together to make sure the banksters get paid interest on the money they created (with hard work of course) from thin air.
FOARWARD!
Maybe they could just become the colony of a financially sound and economically solid country. Someone they could model their economy after. Oh...wait. Oops.
I wish the Hank Johnson effect would take hold, problem solved.
You'd need to import a lot of Camden & Baltimore Queens to establish the necessary weight balance.
Ok. Sure. Whatever.
Another $73 billion for future American taxpayers to pay. Gotta keep Wallstreet whole.
What are real estate prices like there?
Don't know. But at this point, maybe headed toward bargain basement prices.
Two Shits Not Given. It's my new favorite thing to say.
"Contagion."
Greece, Puerto Rico, Argentina, Venezuela.
Brazil and Mexico are still paying for the 80's.
So much for "negative rates" as well.
The move up in yield in Bunds has been massive.
If Putin Attacks...
The only thing Putin will attack is Alina Kabayeva's ass.
Is it a nice ass? I like a nice babe's butt.
Good buying opportunity for the munis....
Harbinger.
Go for it ese, you don't need to pay no stinkin intrest.
Clearly the right thing to do, and the only responsible solution really, is to make them a State.......
So many balls, so many chains.
Freedum isn't free you fracking glutinous pigs! Save the Freedum Outpost!
Name the best place in the Caribbean islands to live. Please advise.
SH
Richard Branson's Yacht
For Hawkings and Clinton; Orgy Island
From a friend who went on many cruise ships before they became total shit. Antigua and the British Virgin Islands.
ZH or some web site had a banner ad for some development in the Seychelles but the villas and homes were not cheap.
If you are insanely rich - Bermuda.
How about Belize?
Hilton Head ;o0
I like to be in America
Everything free in America
Alright by me in America
Money laundry in America!
Can you say "Greecerico"? Puerto Greeko?
What about those P. Diddy Rico Bonds i tucked away in my safety deposit box?
Obama said Camden is on the right track now. (Yep)
Maybe we should send a delegation from Camden to P.R. and have them show how it is done.
The blind leading the blind kind of thing.
They need more slaves and low-wages workers in new normal FREE world
jeez, just fuck the banksters.
Didn't all of Puerto Rico move to NYC already ???
Most of NYC moved down to Florida already. I think the population here in Tampa grows because Jew Yorkers emigrate faster than the current residents die... and based on what i've seen from the residents driving and my insurance rates, there's lots of ways to die here...
The Jews love Florida...
Puerto Rico should join the European Union, get huge Euro loans and then delay their own bankrupcy for several years just like Greece did.
Rico's problems are not my problems. Next!
Rico? Suave!
Pretty sure UCLA will never protest unless George Soros sends his men in. They have a military and a police force on campus and most of the students seem to be from other countries anyhow.
Anyone who buys Puerto Rico's bonds is a philanthropist gifting his money to Puerto Rico
NOT
an investor investing in debt, ie a loan that gets repaid with interest.
this came out nowhere - oh well, the fed will capture them with monopoly money and steal their shit - welcome to the USSA 'Ricans...
Give it back to Spain. Thow in California and make it a package deal.
Californians are signing petitions as we speak to declare autonomy...
www.SecondCaliforniaRepublic.com
+1
Secession is a major trend of the future.
Gumby is about to get his ass handed to him. Ha!
Didn't this kleptocracy issue $3bn of bonds just 6 months ago by making those bonds senior to all prior debt? And what ya think the chances are of them trying again?
This game will remain stupid until the players get smarter. Not holding my breath.
What does "Senior to all prior debt" mean when you can't pay anyone? Maybe Greece has the answer???
Well you see now, you issue senior debt to the next greater fool down the line promising you will pay him back above all else so he does not worry.
so he thinks yea sure they owe whatever large number but if I lend him this comparatively small amount right now he will pay me back above all else so I'll be fine, hes good for it....
now in a normal world this would not work that long, like you and some friends with their own hard earned money. once you have fucked everyone or they realize that is your plan its game over for you.
However....
since the people calling the shots at a country scale are playing with house money all around they don't give a shit. Why should they?
Just keep layering on the paper round and round the globe what does it matter to you?
Just add more zeros.
As long as nobody calls anybodies bluff the game goes on.
It's those damned frogs down there. They just won't shut up. Makes people crazy. They lose their mind, can't handle money. Move the frogs to Europe. It's already too late there.
We love or kiki koki (coqui) frogs! Sorry Hawaii for the unintended gift. Send them back with more surf boards please!
But Alyssa Abkowitz told me all of the rich investors are flocking there. What gives? LOL
https://www.youtube.com/watch?v=E2fHFTq4imE
Remember the freddy and fanny lesson of 08/09. Bailout of bond holders is assured.
Why dont they just print the money?
Its easy, everyone is doing it.
PR in a world of hurt as Cuba takes over the place to go. But don't despair. Still the best island in the Caribbean and we're looking forward to being left alone more. As far as the debt, no problemo. That's the mainland to deal with.
All those years of shooting the finger at tourists, is paying off for them I see.. screw them
all those years they never wanted State Hood, because they had it so Good.. screw them
all those years of playing the system going home at Christmas so they could stay Tax Free.. screw them
It is ,"Montreal and Quebec city', as Quebec is the province for both.