In other Sovereign Default News

Generali

Puerto Rico’s Governor Says Island’s Debts Are ‘Not Payable'

Puerto Rico’s governor, saying he needs to pull the island out of a “death spiral,” has concluded that the commonwealth cannot pay its roughly $72 billion in debts, an admission that will probably have wide-reaching financial repercussions.

The problem Puerto Rico (which means Prostitute Rice in Spanish I think even if Wikipedia reckons it means Rich Port. As if!) has is that their constitution states that they must pay their debts before paying any other costs. That means that if they try to default they must stop paying all other Government costs too.

The only way out of this bind apparently is for either someone to bail them out or for bond holders to forgive some of the debt (this is not unheard of by any means - Google Paris Club for more info).

Another drop in the debt ocean compared to world GDP, this really is completely insignificant if you aren't Puerto Rican despite what the WaPo may have you believe. Interesting stuff though.

vivatifosi

Won't America bail them out? I had heard several times - possibly from Puerto Ricans so this may not count for much- that it will at some point become the 51st state.

purch

I would guess (assume) that a fair chunk of the debt will be owed to the US or US based institutuions, so a little "forgiveness" if not a full bailout should be possible.

Generali

I doubt the US would bail them out personally. After all the Federal and state Governments were happy to see Detroit go to the wall.

Apparently there have been 47 municipal bankruptcies since Jan 2010:

http://www.governing.com/gov-data/municipal-cities-counties-bankruptcies-and-defaults.html

I have no idea how accurate that number is.

michaels

Generali wrote: »

I doubt the US would bail them out personally. After all the Federal and state Governments were happy to see Detroit go to the wall.

Apparently there have been 47 municipal bankruptcies since Jan 2010:

http://www.governing.com/gov-data/municipal-cities-counties-bankruptcies-and-defaults.html

I have no idea how accurate that number is.

I was going to say the same, isn't this more like Detroit going bust than a sovereign default. Given the issues with the constitution I can see there being only one group of winners - lawyers....

Generali

michaels wrote: »

I was going to say, isn't this more like Detroit going bust than a sovereign default. Given the issues with the constitution I can see there being only one group of winners - lawyers....

AIUI, and I confess that this is Google knowledge, Puerto Rican debt trades in much the same way as Muni debt but more popular with investors as it comes with even more tax advantages attached than normal muni debt as you don't have to pay Puerto Rican taxes on the income.

Puerto Rico isn't a part of the US despite a general assumption that it will be one day. TBH I expect that the Paris Club will fix this one: everyone loses a bit, nobody loses everything.

Presumably if it came down to it the constitution could be changed to allow the country to continue to function. As long as investors are treated pari passu (no investor or investor group is treated better than others) then losses would have to be taken on the chin.

Generali

The slow default continues.

Basically, the PR Government is meant to pay a certain amount into an escrow account on a regular basis so it can make good on bond payments. It has failed to do so, something that is technically a default although a pretty minor one as defaults go.

They also made a very small but very real default on a different sort of riskier bond that it seems that they could quite easily have paid out of general taxation but chose not to (softening up the markets for the larger default to come?).

Now it seems that everyone agrees that PR is in genuine financial trouble and needs to restructure its debts but the problem is which ones?

More here:

http://www.nytimes.com/2015/08/05/business/dealbook/puerto-rico-has-another-debt-worry-on-horizon.html?ref=dealbook&_r=0

and here:

http://fortune.com/2015/08/06/puerto-rico-default/

In the meantime, there are reports of some quite substantial redemptions from Muni bond funds. I guess it's the Greek conundrum. Nobody cares if PR/Greece defaults but what if it encourages CA/Italy to default?

Anyway, I thought people might be interested in an update from a rather dusty little corner of the fiscal world.

remorseless

Generali wrote: »

Puerto Rico isn't a part of the US despite a general assumption that it will be one day.

You mean it is not attached to the United States? I thought Puerto Rican are American by birth... so yeah, maybe some technicality but it is America! Even Amazon ships there

Isn't like one of the Channel Islands defaulting and the UK not intervening... as if!

Beside, Schauble was happy to do a switcheroo with Greece...

Generali

remorseless wrote: »

You mean it is not attached to the United States? I thought Puerto Rican are American by birth... so yeah, maybe some technicality but it is America! Even Amazon ships there

Isn't like one of the Channel Islands defaulting and the UK not intervening... as if!

Beside, Schauble was happy to do a switcheroo with Greece...

I mean it isn't a State of the US. IIRC it's in some kind of international law limbo as it was meant to be part of the USA at one point but farmers objected.

I should Google it really but that would mean not watching the cricket highlights.

remorseless

Generali wrote: »

I should Google it really but that would mean not watching the cricket highlights.

you don't need 10 min for the latest cricket highlights this time around... the whole match lasted less!

Generali

remorseless wrote: »

you don't need 10 min for the latest cricket highlights this time around... the whole match lasted less!

Ah yes but it is 10 minutes to be savoured and enjoyed like a bottle of Grange or an aged stilton.