Puerto Rico on the brink

Late Sunday evening brought devastating news to Puerto Rico: in an interview with The New York Times, Governor Alejandro Garcia Padilla decided that the debt load of the territory is not payable. The interview, prompted by the release of a report by Anne O. Krueger, fromer World Bank Chief Economist and first deputy managing director of the International Monetary Fund.

The news has been big enough that almost all national media outlets have put out stories on the matter: CNN, the Associated Press, VICE News, the Washington Post and others all covered the story. With Garcia Padilla’s statement came an examination of the report, which warns that the current path is unsustainable, and that the deficit is much larger than had been previously reported.

The Governor is expected to deliver a televised message to residents of Puerto Rico at 5:00pm, after calling for a meeting of the territory’s elected officials, which he reportedly will not attend. During the meeting, the report by Krueger will be discussed, including the recommendations set forth in it, which include extreme measures of austerity over the next 5 years to stave of total economic collapse after a default. The report proposes cuts in Medicare funding, cuts in public employment, increase in taxes, and lobbying of Congress to exempt Puerto Rico from the minimum wage and the Jones act.

Stay tuned to this story for updates and all you need to know on the looming crisis, which just happens to come on the same day fears from Greece are spreading throughout the markets.

Updates

• Bloomberg reports that general obligations maturing in July 2035 traded Monday at an average of about 71 cents on the dollar, down from 77.3 cents Friday and the lowest since they were first issued at 93 cents in March 2014.
• Business Insider adds it take on the crisis, with commentary from other local leaders.
• Puerto Rico’s crisis is not going to waste to opponents of a higher minimum wage, as Max Ehrenfreund argues the crisis in the territory shows the danger of a high minimum wage.
• The news has made it to Facebook’s Trending Topics. 
• Politico and NBC News added an article of their own.
• FOX Business sheds light on how American retirees are at risk with the news of a possible default.
• At the Wall Street Journal, Matt Jarzemsky notes how the lack of Chapter 9 bankruptcy makes the whole idea of restructuring debt, and winning concessions from bond holders that much more difficult.
• Fitch downgraded Puerto Rico’s general obligation bonds six levels.
• Puerto Rican economist Gustavo Velez is calling for the suspension of the 2016 elections in Puerto Rico, and for Washington, DC to take over the administration of the territory.
• Fortune is covering how John Paulson is having a terrible week because of the crisis in Puerto Rico and Greece.
• Representative Jose Serrano (D-NY) has asked for federal intervention in Puerto Rico.
• The Miami New Times does a good job summarizing the crisis and includes information on how this affects Florida.
• The Wall Street Journal reminds us how difficult the situation is, adds observers’ predictions that there will be a default and government shutdown.
• Senate bill to be introduced to extend Chapter 9 bankruptcy protection to Puerto Rico.
• The New York Times’ Dealbook has indepth coverage, with articles explaining the bond situation, and covering the response in Washington.
• Over at the Huffington Post, Roque Planas and Adriana Usero have an explainer for why it is so difficult for Puerto Rico to get out of this mess, while incorrectly stating that the territory has a unique status.
• It appears that in the short term, Puerto Rico will be making payments, as ChannelNewsAsia reports on a payment made Tuesday on a short term loan.
• Daniel Hanson at the Wall Street Journal says no serious solutions have been tried in Puerto Rico.
• Fox News Latino (because Fox News won’t publish anything about Puerto Rico on its main website) summarizes the Governor’s message and call for a “negotiated moratorium.”
• Standard & Poor’s has followed Fitch, and downgraded all Puerto Rico government bonds to a CCC- grade, one notch above default. Moody’s should follow soon after.
• The governor has been conducting meeting with leaders of the opposing political parties and with union leaders, who (inexplicably) expected to hear specifics as to how to solve the crisis.
• Former Governor Luis Fortuño contradicts Governor Alejandro Garcia Padilla, says it is not impossible to pay bonds on CNBC.
• Presidential candidates Martin O’Malley and Hillary Clinton react to Puerto Rico crisis.
• Latina.com has a comprehensive summary of the situation.
• The Washington Post’s Wonkblog – Things in Puerto Rico are getting really bad: What you need to know.
• Governor Alejandro Garcia Padilla’s comments on a possible default did not please investors, reports The Bond Buyer.
• Former US House Speaker Newt Gringrich has come out in support for federal bankruptcy protection being extended to municipalities in Puerto Rico.
• The New York Times Editorial Board also supports Chapter 9 bankruptcy protection for Puerto Rico. So did the LA Times’.
• Fusion’s Felix Salmon covered the crisis, drawing parallels between Greece and the territory.
• The maritime industry has taken notice of the Krueger Report’s recommendation that Puerto Rico seek to be exempted from the Jones Act.
• Moody’s has also downgraded Puerto Rico’s ratings.
• PewResearchCenter gives us a glimpse as to how the economic conditions in the islands are affecting demographics.
• University of Puerto Rico economics professor Orlando Sotomayor provides a rather pessimistic outlook of the territory’s situation.
• CNBC’s JIm Cramer says Puerto Rico is more important than Greece to the market.
• The Guardian interviewed residents about the crisis.
• The Hill recounts what has happened in Congress so far.
• In the understatement of the century, the LA Times says some Puerto Ricans are considering leaving the islands.
• Deepak Lamba-Nieves and Andrew Schrank do their take on the crisis on Foreign Affairs.
• The New York Times’ Paul Krugman argues that Puerto Rico is not Greece in terms of their respective economic crisis.
• Former Governor Luis Fortuño was on Al Jazeera America to discuss the situation, reminding viewers that he was in office during the only year of economic growth seen in the last 9 years.
• The New York Times covers the difficulties Puerto Ricans are facing under the crisis.
• The president of the Latino Victory Project called for Congressional action on Puerto Rico in a column for Roll Call.
• The Florida Center for Investigative Reporting explains how vulture funds contributed to the economic mess facing Puerto Rico.
• Vox had Matthew Yglesias do a pretty good explainer, except for doing no research on the effects on statehood (while also mischaracterizing the cultural/political dynamics of the US).
• CNBC covers the difficulties small business owners in Puerto Rico are facing given the new 11.5% sales tax, the highest one of any US juridiction.