Congress to take up Puerto Rico Bankruptcy?

This week, nothing mattered much beyond Greece. The situation has been well-covered, so no reason to recount the story here.

But, the governor of the island state of Puerto Rico (which is a U.S. territory) told the New York Times that Puerto Rico cannot pay its debts. The government and various agencies risk default this month.

Puerto Rico had two big economic contributors in the past – the U.S. military and favorable tax treatment for pharmaceutical companies operating on the island. Both of these things went away over the past 15 years, leaving the country with a big hole in its economy and a bloated government. The territory ran a deficit in every year since 2007 except one, and yet continues to increase government spending. The government employs roughly 27% of the workforce..

As a territory, the island operates like a state in the U.S., and there’s no provision in the Federal Bankruptcy Code for such an institution to declare bankruptcy. Puerto Rico has been pushing Congress to take up a couple of bills that would allow some of the public agencies on the island to declare bankruptcy, but nothing has happened on that front.

The territory’s constitution explicitly states that it must pay its debt before all other expenses, which includes rent, wages, and pensions. What are the chances that Puerto Rican leaders will send all available cash to bondholders and not pay their workers or retirees?  Zero. Anticipate congressional action after the Fourth of July Holiday.

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Martin Milita

Martin Milita is a Senior Director at Duane Morris Government Strategies, LLC. Duane Morris Government Strategies (DMGS) supports the growth of organizations, companies, communities and economies through a suite of government and business consulting services. The firm offers a range of government relations and public affairs services, including lobbying, grant writing; development finance consulting, media relations management, grassroots campaigning and community outreach. Milita works at the firm’s Trenton and Newark New Jersey offices. Visit his blog at: https://martinmilita1.wordpress.com Follow him on twitter: @MartinMilita1 https://www.facebook.com/martin.milita http://www.dmgs.com/ BLOGROLL Martin Milita – About.me Martin Milita :: Pinterest Martin Milita @ Twitter Martin Milita at Slideshare Martin Milita on Google+ Martin Milita Yola Site Martin Milita | Xing

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