Puerto Rico Faces Default, Government Shutdown On July 1
Late last month we outlined what is an increasingly desperate fiscal crisis in Puerto Rico. The commonwealth faces a July 1 payment of $630 million on its GO bonds and without furloughing some public sector employees, it’s not clear that the payment can be made, setting up a possible default.
“They really aren’t going to have the cash. There’s no tax you can legislate today that will generate enough income by the time you need it,” Sergio Marxuach, public-policy director at the Center for a New Economy in San Juan, told Bloomberg earlier this month.
In total, Puerto Rico owes some $73 billion, the result of persistently covering deficits with debt even as economic activity continued to slow. On the heels of last month’s failed attempt to push through tax reform, lawmakers and Governor Alejandro Garcia Padilla are now scrambling to pass a new proposal that calls for a sales tax increase and $500 million in spending cuts as part of a 2016 budget which Puerto Rico desperately needs to pass by a July 1 deadline in order to resurrect a $2.9 billion oil-tax bond offering. The proceeds from the proposed deal would go towards repaying a loan from the Government Development Bank which may run out of money by the end of September if the new issue doesn’t materialize.
Budget cuts aren’t very popular these days, especially among students, as the recent protests in Montreal and Quebecmake clear. In essence, the anti-austerity bug has spread outward from Europe and was on full display last week in Puerto Rico when college students took to the streets of San Juan.
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