Puerto Rico announced that it could not pay back all of its at least $73 billion in debt, a clear acknowledgment that the U.S. territory, long under financial pressure, could no longer meet its obligations. Gov. Alejandro García Padilla said he would seek to work out a deal with creditors while urging Washington to pass a law allowing the island to enter a special form of bankruptcy and discharge some of its debts. The White House sounded sympathetic to the plea, although it is not clear whether Congress would permit it.
Why is it happening?
A report issued by the Puerto Rican government said the territory's financial situation is much more dire than people previously realized, with hundreds of millions of dollars in annual spending never accounted for. The circumstances have been exacerbated by an exodus of Puerto Ricans to the mainland United States in recent years amid high unemployment. In one example of Puerto Rico's financial missteps, the report noted that Puerto Rico has continued to increase the number of teachers on its payroll even as the number of students in the school system has dramatically declined.
What does it mean for me?
For Puerto Ricans, the risk is now months or longer of painful negotiations with creditors that could further crimp the government's ability to provide services for its people. For other Americans, there does not appear to be much of a short-term financial risk. But if the island's debt problems are not resolved, that could affect the broader municipal bond market, which funds state and local finances, affecting everything from utilities to road repairs.
