Puerto Pobre: Puerto Rico’s debt crisis (sales, brokers)

[AntonioR]

Puerto Rico carries outsized importance in America’s almost $4 trillion municipal-debt market, which includes bonds issued by states and other local authorities as well as by cities. The island’s current debt, between $52 billion and $70 billion (depending on how it is measured), is the third-largest behind California’s and New York’s, despite a far smaller and poorer population. In America’s 50 states the average ratio of state debt to personal income is 3.4%. Moody’s, a ratings agency, puts Puerto Rico’s tax-supported debt at an eye-watering 89% (see chart).

The economy has big structural problems. Participation in the labour force, at 41%, is some 20 percentage points below America’s. The island has the federal minimum wage, even though local productivity and incomes are far lower than in the rest of America, creating a strong disincentive to hire. Inflated benefit payments, for disability for instance, discourage work. Moody’s Analytics reckons the territory’s bloated public sector accounts for 20% of employment, compared with 3.7% for the average state (though it provides some services that the federal government would on the mainland). Growth and investment are hampered by bureaucracy, stunted infrastructure and crime.

Puerto Rico has been in recession virtually since 2006, when a federal tax break for corporate income expired, prompting many businesses to leave. As Puerto Ricans with prospects emigrate, the remaining population has aged and shrunk. The government has run budget deficits (prohibited for states) for the past decade, averaging 2.5% of GDP from 2009 to 2012. Its pension fund is only 7% funded, which is abysmal even by the standards of other American states and territories.

Investors are now openly debating whether Puerto Rico will default. Its constitution requires that its general-obligation bonds ($10.6 billion of the total) get first claim on tax revenues. Other bonds are backed by dedicated revenue such as sales tax and power bills and by a law authorising the government to pay interest ahead of other claims. “Honouring debts is not only a constitutional but also a moral obligation,” Alejandro Padilla, the governor, told investors earlier this month.

Puerto Rico’s problems have not yet had much effect beyond its shores. Its debt is held mainly by mutual funds and individuals, although in recent months many have sold to distressed-debt specialists. Some brokers have stopped selling its bonds to their clients. Borrowing costs have risen for a few highly indebted states such as Illinois, but the majority have no trouble selling bonds, says Chris Mier of Loop Capital Markets, which specialises in municipal debt.

No state has defaulted since 1933. A default by Puerto Rico could come as a wake-up call.

http://www.economist.com/news/financ...t-puerto-pobre

Do you think Puerto Rico will default?

Do you see Puerto Rico solving its economic problems or will things get worst?

How has the Puerto Rican crisis affected you, your family, or someone you know?

[AntonioR]

[BougNeg1]

Participation in the labour force, at 41%, is some 20 percentage points below America’s. The island has the federal minimum wage, even though local productivity and incomes are far lower than in the rest of America, creating a strong disincentive to hire. Inflated benefit payments, for disability for instance, discourage work.

Puerto Rico is hopeless unless these facts are dealt with.

[chacho_keva]

Originally Posted by BougNeg1

Participation in the labour force, at 41%, is some 20 percentage points below America’s. The island has the federal minimum wage, even though local productivity and incomes are far lower than in the rest of America, creating a strong disincentive to hire. Inflated benefit payments, for disability for instance, discourage work.

Puerto Rico is hopeless unless these facts are dealt with.

Without verifying, your claims do sound correct based on what I loosely know.

As I have sadly proclaimed in this US Territories segment, I have lost faith in the island of my birth. Not something I'm proud of.

"How will Puerto Rico avoid catastrophe and total collapse?" That may be the greatest unknown.

[WIHS2006]

The problem isn't the minimum wage, the shipping laws, or welfare checks. It's things like the mandatory Christmas bonus, mandatory x2 overtime for all weekend workers, the lack of efficient collections by the Hacienda (their tax collection rate is far below the US state average of 88%), 78 unnecessary municipal governments, and bloated bureaucracy at the state and municipal levels.

Puerto Rico needs to become more like Texas and less like Spain.

[BougNeg1]

It's a shame. Such a beautiful place with beautiful people.

[havana day dreaming]

.. as I live about 60 miles from P.r....across the Mona channel... I hear People on this site talking about P.R as it were almost a state.... I dont what to be negative, but I think that will never happen... the USA at this point in time cant afford that......

[WIHS2006]

Originally Posted by havana day dreaming

.. as I live about 60 miles from P.r....across the Mona channel... I hear People on this site talking about P.R as it were almost a state.... I dont what to be negative, but I think that will never happen... the USA at this point in time cant afford that......

With that logic the Blacks would still be getting attacked with fire hoses and baton charges ...

Besides, either way we will have to pay for the Puerto Ricans. It's not a question of money. Either we pay for them in Puerto Rico, or we pay for them when they move to Florida.