At long last, Puerto Rico has filed for bankruptcy. Over the past 10 years, Puerto Rico’s economy has been in slow decline: losing 20% of its jobs from 2007 and 10% of their population. With this double-edged sword, their national incline is in steady decline and their amount of tax revenue also sharply declined; this combination led Puerto Rico to its current state of solvency issues. With the announcement of the Title III bankruptcy filing, many from both inside the island and out are left wondering what will happen in the coming months. The severity of this situation and the uniqueness of Puerto Rico’s unprecedented circumstances make the outlook of the future very murky.
The citizens: In the past 10 years already, tens of thousands of Puerto Ricans have flocked to the state of Florida in an attempt to escape the economic hardship they were facing: this is legal. By law, all Puerto Ricans are US citizens, so they may move to the mainland whenever they please. However, most residents of Puerto Rico enjoy the dichotomy they are afforded while on the island. The citizens of Puerto Rico find their situation very nice: being protected under all US laws and gaining all US rights while staying away from what they view as the tyranny of Washington DC. However, if they choose to stay on the island, they will likely see programs like pension funds and Medicare take a huge cut, as permissible by the Title III bankruptcy legislature.
The Investors: Herein lies a majority of the concern. Investors that hold secured government debt are in the best situation; these investors have a decent percentage chance at receiving their repayment in full, but this is still subject to judicial rulings. Investors that hold unsecured debt and all other types of investments are in a true wait-and-see situation. With the hearings likely to take place in the coming months, all that are invested in Puerto Rico will be tuning in with great detail, waiting anxiously to see how they rank in terms of repayment priority.
Puerto Rico: Numerous possibilities lie ahead for the island nation. What is most likely to happen is that Chief Justice John Roberts will appoint a judge to oversee the rulings. In this procedure, the appointed judge will likely have a lot of say in what happens to Puerto Rico, mainly because there is no other bankruptcy case in history like this one (Puerto Rico is $74 billion in debt, which is 100% of their Gross National Product). However, Puerto Rico is not forced to sell off assets in order to repay these obligations: they are protected from this under the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA). During the rulings, the judge overseeing the case will likely be the one deciding if Puerto Rico must sell assets such as beachfront property to reconcile their obligations, as creditors will no doubt push heavily to acquire assets such as that.
With all of this turmoil surrounding Puerto Rico, their future economic stability is in grave danger. The recently laid out a plan to help significantly fix their situation by 2020, but it is clear at this point in time that that will not work. Amidst all of these uncertainties, many are speculating if the US could gain a 51st state, and it seems more likely than most people would believe. Since Puerto Rico is apart of the US even as just a territory, US Government is very unlikely to just let them be and figure it out on their own, because that hurts the US as a whole. Also, Puerto Rico’s argument for remaining separate was that they kept Washington at bay, which is now a very weak argument considering the legal battle they are about to enter. These developments will certainty be interesting to keep an eye on, as we could have a new member to the United States of America.