Typical economic issues caused Puerto Rico (PR) Debt Crisis. Their bonds exceedingly fueled their economy. PREPA, their main producer of energy utilizes the market volatile oil to supply electricity. The mismanagement of governmental budgetary accounts allowed them to run up massive debts. Furthermore, recession, reduction in labor force, cabotage, and the high cost of living all combined to join Puerto Rico into economic crisis. Yet, investors flocked to PR for their triple-tax exemption and higher than average bond yield. To stay economic catastrophe, the governor of Puerto Rico, Alejandro Garcia Padilla, installed the Public Corporation Debt Enforcement and Recovery Act. The Act overhauled government spending by cutting teacher pension, cut agency’s budgets by 2%, and increased corporate taxes. Yet, these policies were not enough to boost …show more content…
First, the Standard and Poor's downgrade PR’s bond status to BB+, Moody’s to Ba2 and Fitch to BB. The international credit ranking system as a whole downgraded PR bonds to almost junk bond status. Thus, triggered clauses in previous bond contract for immediate payment of principal. The main focus of these clauses was PREPA, the country’s electric provider. PREPA borrowed to pay for the fluctuating and expanding oil cost. Then, parts of its 9 billion debt came due after bond downgrade. Since PR is not a sovereign nation, it cannot claim bankruptcy because only congress can in territories. Thus leaving PR and PREPA in a cycle of debt repayments of economic default. As their bonds were valued at 40 cents on the dollar, default looked more and more like a probable outcome. To stave off default PR’s governor instituted a de facto bankruptcy system with its own specific insolvency framework and regulations for companies’ debt restructuring. Thus, giving companies nine months to restructure with a 75%