The Treasury Department is quietly stepping up its involvement in Puerto Rico, an indication that the island’s financial problems, which have been simmering for years, are reaching a critical point, the New York Times reported today. High-ranking officials have been shuttling between Washington, D.C., and Puerto Rico, advising commonwealth officials as they try to stabilize the island’s finances. Puerto Rico is struggling with far more debt than analysts believe it can repay, and no legal framework exists to reduce the burden. Financially troubled cities and counties in the U.S. can take shelter in chapter 9 bankruptcy, but federal law denies that option to United States territories and commonwealths, and attempts to amend the law face an uphill battle. Neither a federal bailout nor a takeover of the island’s finances by the Treasury is under discussion, according to officials. On a per-capita basis, Puerto Rico’s debt load of $73 billion is bigger than that of any state. Much of it is owned by middle-class Americans who bought the island’s municipal bonds indirectly, as part of their retirement accounts, so any default would reverberate far beyond Puerto Rico’s shores. But to avoid a default in the near term, Puerto Rico has little choice but to add to the mountain of debt and is seeking to borrow as much as $2.9 billion more this spring.
