Puerto Rico was only able to pay $628,000 for a $58 million debt they owe to the creditors of the Public Finance Corporation that was due Monday. Puerto Ricans in majority owe these debts by credit unions, CNN Money reported.
According to Melba Acosta Febo of the Government Development Bank of Puerto Rico, "This was a decision that reflects the serious concerns about the Commonwealth's liquidity in combination with the balance of obligations to our creditors and the equally important obligations to the people of Puerto Rico."
"The debt is not payable," Gov. Alejandro Garcia Padilla previously stated. "There is no other option. I would love to have an easier option. This is not politics, this is math," according to the New York Times.
In comparison to Detroit's $20 billion debt, Puerto Rico has a massive debt of $72 billion. In comparison, Greece has $350 billion in debt. On the other hand, Detroit can declare bankruptcy but not Puerto Rico and the International Monetary Fund can save Greece from debt. Jack Lew, Treasury Secretary announced that the federal government will not rescue Puerto Rico unlike what IMF did for Greece, USA Today reported.
The crisis in Puerto Rico is expected not to affect the U.S. economy but Lew said otherwise. There are over 3 million American living in Puerto Rico, and the government has no plans of helping them out. These Americans go back to the U.S. mainland looking for jobs to make up for the crisis in Puerto Rico.
The default would liquidate the municipal bond market, exposing retirement funds, pensions and investors, said Dante Disparte of the capital management company Risk Cooperative.
"A $73 billion write-off has a potential to bring down many more aspects of the economy than we might let on, because we are trying to treat it like it's isolated and that it's an island, but it's a dollar-denominated economy. It's part of the U.S., and the firms to whom that debt is owed may very well be the firms managing our grandparents' pensions and our own retirement plans," Disparte explained, according to the Huffington Post.
