Puerto Rico’s Debilitating Economy

Puerto Rico is under a huge debt and needs financial aid to overcome it. In the wake of this economic turmoil Aurelius Capital Management, Autonomy Capital and other investors who own $8 billion of Puerto Rico bonds strikes a tentative pact with the island to reduce the nearly $18 billion of debt it owes to the lenders. Even though the creditors are divided in Puerto Rico, it seems that they're coming together to join the tentative agreement and help Puerto Rico pay off its debt. Another group of investors, which includes BlackRock Financial Management Inc., and Brigade Capital Management, have also signed on to the pact, according to the filing. The potential deal would cut Puerto Rico general obligations and debt guaranteed by the commonwealth to $10.7 billion from $17.8 billion, about a 40% reduction. The overall plan slashes debt and non-bond claims to $11 billion from $35 billion, a $24 billion reduction.

The island that filed bankruptcy on 2nd July, 2017, owes nearly $18 billion of general obligations and commonwealth-backed bonds. The crisis began in 2014 when three major credit agencies downgraded several bond issues by Puerto Rico to "junk status" after the government was unable to demonstrate that it would be able to pay its debt. The downgrading, in turn, prevented the government from selling more bonds in the open market. Unable to obtain the funding to cover its budget imbalance, the government began using its savings to pay its debt while warning that those savings would eventually be exhausted. To prevent such a scenario, the United States Congress enacted a law known as PROMESA, which appointed an oversight board with ultimate control over the Commonwealth's budget.

However, the law backfired as the government increased taxes and reduced pensions pushing it further into debt.Attracting investment to Puerto Rico and improving its economy depends upon resolving its bankruptcy and easing its debt load. With the plans to resurrect the economy, Puerto Rico needs a solid strategic planning to overcome adversities.

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