Puerto Rico has become the latest government entity to be overwhelmed by poor fiscal management, though the small territory has largely flown under the radar due to the ongoing situation in Greece. The small island territory is home to only 3.5 million, but has accrued a debt of over $70 billion.
The Puerto Rican government has $483 million worth of debt to pay by Monday, and will likely pay most of it except a $58 million payment owed to the Public Finance Corporation. The PFC consists of debt held by common Puerto Ricans through various credit unions, and the local government views this organization as the least likely to sue.
So far the American government has refused to bailout Puerto Rico, and aid may be hard for the small island territory to come by. Many of the country’s bonds have been downgraded to junk status. Unlike other American government entities, such as Detroit, Puerto Rico is barred from declaring bankruptcy, so it remains unclear what the territory’s next step will be.
The Puerto Rican governor has stated that the country’s economy is in a “death spiral”. Following the phase out of tax breaks to mainland American companies operating in Puerto Rico in 2005, the territory’s gross national product has shrunk year after year. After peaking in 2005, the GNP has shrunk to less than 90 percent of the 2005 benchmark.
Puerto Rico is also suffering from a population crisis, with the country’s population shrinking by as much as 1 percent per year. Puerto Rico’s population is shrinking faster than any American state as many Puerto Ricans are using their American citizenship to flee to the mainland, where the economy is stronger.
From 1990 to 2000 approximately 11,000 people left Puerto Rico on an annual basis. From 2010 to 2013, 48,000 people left on an annual basis. The shrinking population is now contributing to an over-worsening economic situation.
Since 2000 only one U.S. state has seen its population shrink more than 1 percent in a given year, and that was Lousiana during the aftermath of Hurricane Katrina. With the territory’s population shrinking so quickly, obtaining stable and substantial economic growth could prove to be near impossible.
