Why Is Puerto Rico Still Adding Debt?

Puerto Rico’s latest bond offerings were recently downgraded to junk status, along with previous bonds. These bonds are actually debt for Puerto Rico, money borrowed in hopes of paying it back with the very high sales tax paid in Puerto Rico or the very high gas tax.

Does Puerto Rico need more debt? The debt is already 66% of Puerto Rico’s GDP — $73 billion.

The problem is that Puerto Rico needs money. The economy is in grave trouble and the local government doesn’t have enough funds to keep the lights on.

In a recent speech at New York University School of Law, Rep. Pierluisi suggested that the economic problems in Puerto Rico are the result of Puerto Rico’s difficult position as an unincorporated territory of the U.S. How does this territorial status affect Puerto Rico economically?

  • Puerto Rico doesn’t get the same support in grants and other sources of Federal funds as the 50 States do. As a State, Puerto Rico could receive billions more dollars than are currently allocated.
  • Since the Federal government does less in Puerto Rico, the local government has to do more. So far, the local government has added more and more and more debt, and the cost to service that debt is a great burden.
  • Businesses from the mainland have built businesses in Puerto Rico and there is income from tourism. However, in neither case is the economic benefit what it should be. Statehood would remove the uncertainty of the current status and increase support and connections with other states. Just as Hawaii and Alaska have both become much more prosperous since statehood, Puerto Rico would benefit economically from statehood.

Puerto Rico’s “junk” status is based on the belief of experts that Puerto Rico will never be able to pay off her debt if she continues as she has been.

So why add more debt?  Without statehood, Puerto Rico has few options economically. As Rep. Pierluisi said in his speech, “The truth is simple. To succeed, Puerto Rico must be treated equally. And to be treated equally, Puerto Rico must become a state.”

As long as the current government refuses to respect the 2012 vote of the Puerto Rican people and to work against statehood, they have few options. Borrowing money is one of them.

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