WHAT IT IS
- May 3, 2017: Puerto Rico, a U.S. territory, filed for bankruptcy with the U.S. federal government.
- This is the largest U.S municipal bankruptcy filing in U.S. history.
- Puerto Rico is filing for $123 billion in debt and pension obligations, compared to the the $18 billion bankruptcy filed by Detroit in 2013 for Auto Industry.
WHY IT MATTERS
Due to an almost two decade recession, last year the Puerto Rican government passed Title III which allowed Puerto Rico to file for bankruptcy. In the U.S., insolvent local governments file for Bankruptcy under Chapter 9 but since Puerto Rico is not a part of any state, Chapter 9 couldn’t be applied. This could set a precedent for economically struggling U.S. states.
WHERE WE ARE NOW
- Puerto Rico will begin its bankruptcy proceedings on May 17 in San Juan.
- Puerto Rico can’t pay back its debt so creditors are taking aim at one another.
THINGS TO THINK ABOUT
- If conditions in Puerto Rico don’t improve, will citizens move to mainland USA and create a “Brain Drain”?
- If Puerto Rico is successful in their filing for bankruptcy could financially strapped states like Illinois follow?
- Could the financial loss of the financial institute at play affect U.S. and foreign stock market indexes?