Puerto Rico’s growing emergency
Hurricanes exacerbate financial crisis
Jule Pattison-Gordon | 10/11/2017, 10:22 a.m.
The devastation of two hurricanes has put the human costs of Puerto Rico’s debt repayments in sharper focus. The U.S. territory owed more than $70 billion before Hurricanes Irma and Maria struck, knocking out most of the already-outdated electric grid, flooding streets, demolishing homes and causing massive shortages of basic supplies. On Sept. 30, the Department of Defense estimated that 45 percent of Puerto Rico residents were without access to drinking water and 95 percent without power.
Fixing the damages caused by Maria alone, which had more severe impact than Irma, is estimated to cost $95 billion to a government already unable to pay its $70 billion debt. As the government strives to stay afloat and fund recovery efforts, it does so while revenue has been cut off due to the emergency. Puerto Rico Treasury Secretary Raul Maldonado told Bloomberg News on Oct. 4 that it will be at least another month before the government resumes collecting taxes.
“Essentially you’re looking at zero revenue for the next couple of months,” said Maldonado. “While you have zero revenue, you still have expenditures, plus emergency expenditures. That means the money is going to run out very quickly.”
Even when tax collection resumes, that revenue may be severely depleted, as the hurricane has accelerated an ongoing exodus of residents driven out by the island’s buckling economy and lack of jobs. Between 2010 and 2016, the population declined by 8 percent, according to MarketWatch. In the hurricane’s aftermath, it is likely another 100,000 to 200,000 residents will leave, Edwin Meléndez from Center for Puerto Rican Studies at Hunter College told Vox.
Maldonado has asked the federal government to provide $6 billion to $8 billion to keep the territory’s government running for the next few months. Without emergency funding from Congress, Puerto Rico’s government may shut down on Oct. 31, he said.
Puerto Rico’s creditors range from individual retirees to deep-pocketed hedge fund owners. After the hurricanes struck, The Intercept contacted 51 major bondholders to ask if they would support a cancellation or moratorium on debt payments. By Sept. 27, none of the 51 creditors contacted said they supported debt relief, and only three reported donations to relief organizations: Goldman Sachs, Citibank and Scotiabank. Others, including the Prepa Bondholder Group, offered a new loan and a loan swap. The offer would provide immediate cash for restoring power, but would have to be repaid with interest, piling more onto the debt burden. The bonds offered also are of a type that have a higher repayment priority than currently held by that creditor group, thus placing them ahead in the line to get paid, The Intercept states.
Bostonians are among notable players in Puerto Rico’s financial crisis. Recently, it was revealed that Seth Klarman’s Boston-based Baupost Group hedge fund owns $911 million of Puerto Rico’s debt. Another local is Carlos Garcia, owner of BayBoston and a member of the Hyde Square Task Force board of directors, who was involved in issuing debt on behalf of Puerto Rico, tightly linked to a company paid to underwrite the debt and on the board charged now with resolving the crisis.