If you don’t get it yet, Puerto Rico has entered a debt vortex that is inexorably sucking the life from its economy and its continuously shrinking populace. In 2009, under a new administration, payroll tax reduction and regulatory reform hoped to incent new growth. The Governor even reduced the overall corporate tax rate and fired tens of thousands of government employees, ideas mocked by Democrats in Washington. All of which contributed to debt reduction and a light, albeit a dim one, at the end of the tunnel. Puerto Ricans shoulder almost 4 times the burden of U.S. leader Massachusetts which carries a deficit of $5,077 per citizen. Even the fiscally retarded number three ranked Illinois shows only a per capita load of $2,539. For another vista California, with $97.6 billion in absolute debt has a population about ten times that of Puerto Rico but only carries 1.4 times the debt. A seemingly perpetual recession has enshrouded this island paradise for the last eight years which has seen its economy contract by over 16%. If you don’t get it yet, Puerto Rico has entered a debt vortex that is inexorably sucking the life from its economy and its continuously shrinking populace. Since there doesn’t seem to be the political will to reform the economy, in my opinion, some sort of bankruptcy scenario is inevitable. And the sooner the Band-Aid is ripped off the better. The big pushback will be from all the literally hundreds of mutual funds that hold Puerto Rican bonds. Oppenheimer funds hold almost $5 billion of “paper” or 14 percent of total holdings. Franklin Templeton group of funds owns over $4.8 billion, which represents 6.5 percent of overall positions. Puerto Rico has to restructure. They can’t keep borrowing at 8 and 9%, raising taxes on the only ones paying any, and chasing away its brightest contributors to the relative economic paradise of the mainland. Bondholders have already taken a big hit and are going to take a long, slow and inevitable bigger one if they don’t restructure now.
Posted on: Mon, 02 Dec 2013 18:18:00 +0000
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