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Puerto Rico is Looking for Any Help it Can Get

On May 2, 2016, once again Puerto Rico defaulted on its debt. As it managed to negotiate with some of its creditors, its Government Development Bank did pay part of the $422 million it owed this week, but about $270 million in payments were missed. (1,2)

Puerto Rico’s fiscal crisis made headlines last year when its total debt passed $70 billion, more than any U.S. state except for New York and California. Its government has defaulted three times on its debt since the start of 2015. (3,4)

Puerto Rico has been in a recession for the better part of a decade. About 45% of Puerto Ricans live in poverty, and people are leaving the commonwealth at a rate of 1,500 a week. Its schools, hospitals, and social services programs have already been hit with severe budget cuts. (3,5)

On May 1, Governor Alejandro García Padilla called the default “a painful decision,” but also a necessary one. Faced simultaneously with “the inability to meet the demands of our creditors and the needs of our people, I had to make a choice. I decided that essential services for the 3.5 million American citizens in Puerto Rico came first.” (5)

July 1 presents a critical deadline. On that day, the commonwealth must make about $2 billion in debt payments. Analysts are highly skeptical that Puerto Rico will be able to do that. (1)

Will Congress intervene? The pressure is certainly mounting on Capitol Hill lawmakers.

Will a bailout be necessary? Maybe not. Last spring, the House Natural Resources Committee attempted to put together a relief bill in response to the crisis. If passed, it would not represent a bailout, as it would not deliver any federal money to Puerto Rico. The bill is still in the works. (1)