Governor Alejandro Garcia Padilla of Puerto Rico unveiled his debt solution last week, and the internet is saying it’s impossible.
Puerto Rico’s Debt: No Way Out, says the Economist. The respected economics journal shared an excerpt from its print edition online, summarizing the governor’s plan and saying,
But the island’s many creditors, who hold debt from 17 public entities, each offering varying degrees of protection, are about as likely to volunteer en masse for haircuts as the government is to pay them on time and in full.
The 2 things Puerto Rico needs to save itself aren’t going to happen, says Business Insider. Those two things are action from Congress and concessions from creditors.
Wall Street isn’t about to make any of those concessions without nasty a fight, especially if they’re not legally compelled to do so.
In other words, this isn’t going to be polite.
Puerto Rico’s plan to pay all of its debt still falls short, says CNN Money. This article is less a commentary than a simple recognition that the budget plan requires approval by both local and federal government, and isn’t likely to get it. CNN Money quoted the words of Moody’s Investors Service:
While the Puerto Rico plan is comprehensive, Moody’s believes the commonwealth’s ability to implement many of the recommended policies will pose political challenges.
Puerto Rico’s recovery plan faces much doubt, many obstacles is how Reuters put it. Reuters brought up not only the unlikelihood that Puerto Rico will get cooperation from government entities and creditors, but also the high chance of civil unrest on the island from ordinary people — U.S. citizens — who are being expected to suffer for the sake of wealthy investors.
“[A] very high debt burden absolutely has a negative impact on the economy and if you sit back and just continue with austerity it gets worse,” said John Miller, co-head of fixed income for Nuveen Asset Management.
What Puerto Rico’s New Plan Means, according to the New York Times, is that struggling states or cities that want to be able to float bonds might find it harder to get investors after seeing what happened with Puerto Rico’s bonds. And that Puerto Rico might find it harder to get federal help with mainland municipalities watching in hopes of getting their own federal help in the future. The Times also acknowledges that Puerto Rico’s status is relevant to the economic issues:
Puerto Rico’s relationship with the United States is complicated. The question of whether the island should become a state, remain a territory or break away into an independent nation has dominated the political discussion for decades. The fiscal crisis has brought that debate into sharp relief.
Puerto Rico Proposes Harsh Austerity To Solve The Debt Crisis, says ThinkProgress. Focusing on the austerity measures demanded by the plan, ThinkProgress quotes LatinoRebels founder Julio Ricardo Varela:
It proves that Puerto Rico is the financial experimental lab of the U.S. Going below the minimum wage, cutting pensions — those are policies that they don’t have the political appetite for on the mainland, but they are tested and implemented on the island. Can you imagine if they tried it in New York?
Most press correctly refers to Puerto Rico as a territory of the United States. Some reports refer to Puerto Rico as a “Commonwealth,” and note incorrectly that the island’s political status changed with its Congressionally-approved local constitution of 1952, but these reports are in the minority.
On Twitter, posts about the island’s financial crisis were being posted just about every two minutes. One of the most-tweeted articles is a relatively cheerful one, “What will it take to solve Puerto Rico’s debt crisis?” This article, by a former New Zealand Cabinet member, says Puerto Rico should liquidate as many assets as possible to pay off some debt and then focus on growth. People will continue to leave the island, the author says, and so will businesses, but Puerto Rico will eventually get back on track. This unusually positive take on the situation, written before the plan was made public, doesn’t expect creditors to agree to take a loss, but doesn’t think they have to agree.
Irresponsible lenders made money available to irresponsible politicians who spent the island into bankruptcy — so we shouldn’t be unduly sympathetic to the bond holders who were the architects of their own misery.
Otherwise, the top story is the plan itself.