The governor of Puerto Rico has decided that the island cannot pay back more than $70 billion in debt, setting up an unprecedented financial crisis that could rock the municipal bond market and lead to higher borrowing costs for governments across the U.S., The Washington Post reported yesterday. Puerto Rico’s move could roil financial markets and raises questions about the once-staid municipal bond market. In addition, with as much as $73 billion in debt, the island’s debt obligation is four times that of Detroit, which became the largest U.S. city to file for bankruptcy in 2012. Puerto Rico’s governor, Alejandro Garcia Padilla, will seek concessions from creditors, which range from mutual funds in the U.S. to large hedge funds that have been buying Puerto Rican debt at high interest rates, in an effort to stretch out loan payments and drive down borrowing costs that are hamstringing Puerto Rico’s struggling economy.
