Puerto Rico, first US commonwealth to default

Lack of resources drive Puerto Rico into new phase of its debt crisis as it fails to meet debt obligations

Photo by: AP
Photo by: AP

The US Commonwealth of Puerto Rico has officially defaulted on its debt as it only made a partial payment toward the debt which was due August 1st. Credit rating agencies have also agreed that the event is considered a default, noting that there is more on the way. 

A statement released on Monday by Government Development Bank (GDB) President Melba Acosta Febo, confirmed that Puerto Rico only made a payment of $628,000 toward a $58 million debt which was due on its Public Finance Corp (PFC) bonds.

The reason seems to be “the lack of appropriated funds for this fiscal year.” 

"This is a first in what we believe will be broad defaults on commonwealth debt," said Moody's analyst in a statement. 

Puerto Rico, also known as the "Greece of the Caribbean," will now sit at the negotiation table for a restructuring plan in hopes of saving the commonwealth from a "death spiral," as it is anchored down by a total of $70 billion in outstanding debt.

In a shocking announcement in June, Alejandro Garcia Padilla Governor of Puerto Rico, announced that the commonwealth is unable to pay its debts and the only way out is if  “we come together and are willing - bondholders included - to assume shared sacrifices today.”

According to Standard & Poor's (S&P), Monday’s event leads the way for more possible defaults as liquidity becomes further constrained, this may also restrict Puerto Rico’s access to further funding for cash flow needs it added. 

S&P has lowered the PFC debt to a "D" rating from "CC," after it failed to meet debt obligations. 

The 3.5 million people currently residing in Puerto Rico have been battling recession since 2006.

TRTWorld and agencies