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Can Puerto Rico Escape Disaster? / GLOBAL RISK INSIGHTS / 05/15/2017

In early May, Puerto Rico filed for bankruptcy in federal court to stave off lawsuits, under a law Congress passed last year, to help the island cut its debt and escape financial disaster. The saga now heads to federal court, where the struggle between Puerto Rico and its creditors will be decided.

The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) law set up a federal oversight board to handle the territory’s debt negotiations and the financial obligations it owes.

Article III of PROMESA provides temporary protection from litigation, which expired last week. Puerto Rico has no way to pay the $123 billion in bonds and pension debt it owes, which includes more than $49 billion in pension liabilities.

PROMESA requires good-faith negotiations toward an out-of-court deal before any filing, as well as to establish “procedures necessary to deliver” audited financial statements for any entity entering bankruptcy.

Some Puerto Rican agencies still have not published such statements, and creditors have complained for a while that the oversight board has not done enough to encourage compromises outside of court.

Is Puerto Rico like Greece?

Well no. Public lenders, such as the Eurozone and the International Monetary Fund (IMF), mostly hold Greece’s debt. Puerto Rico’s debt is in the hands of private investors, like hedge funds, mutual funds, and individuals.


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