Puerto Rico has been left with no more options after failing to reach an agreement with creditors over its crippling $73 billion debt load ahead of a May 1 deadline, putting the U.S. territory on track to file the largest public sector bankruptcy in history.
As of Tuesday, Puerto Rico’s creditors will have free reign to begin filing lawsuits against the commonwealth and its recently elected governor, Ricardo Rossello, while a number of cases that had been frozen in San Juan and New York City courts will be allowed to resume.
Puerto Rican authorities had hoped that they would be able to avoid the bankruptcy filing by negotiating a financial restructuring that would force creditors to take losses of up to 42 percent but no such agreement materialized, especially after an audit carried out in August of last year revealed that Puerto Rico only had about $1.8 billion in assets to cover $45 billion in pension liabilities.
Furthermore, the audit exposed Democrat Governor Alejandro Garcia Padilla for having nearly doubled Puerto Rico’s cash contribution to Puerto Rico’s pension plans from one year to the next instead of paying down its debt, a move that reeks of corruption on an island where about 10 percent of residents are government public employees, retirees, or pension beneficiaries.
The Obama administration teamed up with Congress last year to pass the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) in order to save the territory from financial ruin by handing over its finances to a federally appointed committee. It also laid the groundwork for a Title III bankruptcy process in order to ensure that creditors would not be able to interfere with Puerto Rico’s ability to provide public services by placing liens on assets and tax streams.