WHEN Alejandro García Padilla, the governor of Puerto Rico, announced on June 29th that its $72 billion public debt was unsustainable, he warned that the only alternative to a comprehensive restructuring “would be the unilateral and unplanned non-payment of obligations”. It would be a drastic step for the autonomous American territory, which the United States regards as a commonwealth. Mr García Padilla was presumably hoping to intimidate Puerto Rico’s recalcitrant creditors into accepting their inevitable losses, thus averting disaster. Just a month later, the worst-case scenario has started to become a reality.
On August 3rd Puerto Rico’s Public Finance Corporation (PFC), a government agency, was scheduled to transfer $58m to its bondholders. However, the PFC depends on the island’s legislature to appropriate funds for its debt service. And its lawmakers had conspicuously failed to do so, for one simple reason: in the words of Víctor Suárez, the governor’s chief of staff, “we don’t have the money”. As a result, the PFC only managed to send off a token $628,000. The market’s enforcers did not hesitate to render their...Continue reading
Source :Business and finance http://ift.tt/1g3YA3D
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