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Puerto Rico faces uncertain future as debt saga unfolds

09 May, 2017, 07:58 | Author: Caleb Marshall
  • People protest looming austerity measures amid an economic crisis and demand an audit on the island's debt to identify those responsible during the May Day march in San Juan Puerto Rico Monday

Puerto Rico's Governor Ricardo Rosselló has filed for bankruptcy in federal court.

Marchers blamed Governor Ricardo Rossello for agreeing to cuts to education, health, social security and other public services with the USA federal control board overseeing the island.

"If Congress acting under Article I powers were to amend the bankruptcy code to allow either voluntary or involuntary debt adjustment for USA states, very serious questions would be raised about unconstitutionality", wrote Fordham University School of Law Professor Andrew Kent in a April 20, 2016 letter to the congressional committee that drafted Puerto Rico's oversight law.

The talks broke down as a litigation freeze expired at midnight Monday, prompting creditors to file new lawsuits in an attempt to recuperate their multimillion-dollar investments in Puerto Rico bonds.

Puerto Rico's massive pension debts will also likely get restructured in the bankruptcy.

"For months, the Oversight Board has made every effort to sabotage consensual negotiations, to flout the requirements of PROMESA and Puerto Rico's constitution, and to force Puerto Rico into bankruptcy", the statement continued.

Puerto Rico has reached one consensual settlement with creditors, a $9 billion deal covering its public electricity monopoly that Gov. Rosselló recently renegotiated to mitigate politically unpopular fee increases on residents. The financial collapse promises to impose deep losses on bondholders who for years snapped up Puerto Rico's securities in the hope a bankruptcy wasn't a legal option for Puerto Rico. The chief justice of the U.S. Supreme Court is expected to appoint a judge to oversee Puerto Rico's case, the largest of its kind in U.S. history.

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Puerto Rico announced a historic restructuring of its public debt on Wednesday, touching off what may be the biggest bankruptcy ever in the $3.8 trillion USA municipal bond market.

Detroit's case occurred under Chapter 9 of the U.S. Bankruptcy Code, which is reserved for state and local governments. The people of Puerto Rico have had enough.

Puerto Rico estimates it has about $800 million a year available for debt servicing, far below the $3.2 billion now required.

CNN wants to hear from you: Do you live in Puerto Rico? "It was the long-standing absence of a legal path for restructuring its debt that contributed to this". Its economy has withered, its debt has mounted, and the unemployment rate has settled into double digits. The treasury withheld tax refunds. Detroit owed $18 billion when it filed for bankruptcy in 2013.

The rescue plan involving the oversight board was fraught with politics as it wound its way through Congress previous year.

On the campaign trail, Donald Trump said he would not "bail out" Puerto Rico. As Jeff Mazzella, the group's president, sees it, the oversight board's action "will allow Puerto Rico to rob millions of American retirees and savers who invested in Puerto Rico bonds". He said he did not yet have details on the breakdown of those debts.

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