Puerto Rico defaults on bond payment: Moody’s

The government of Puerto Rico confirmed Monday that it had failed to make a $58-million debt payment, a significant escalation of the fiscal crisis facing the U.S. island territory.

Puerto Rico has an nearly $28 billion consolidated annual budget and more than $5 billion in debt service payments due in 2016.

The debts are a fraction of the $5bn in principal and interest that Puerto Rico is due to pay over the next 12 months, as stated by an analysis of the commonwealth’s debts compiled by Bloomberg.

The island’s economy is a mess.

“We believe that the probability of a default scenario has significantly increased and could risk extending the timeline for a resolution to the island’s situation”, co-founder Michael Weinstock and other firm executives wrote to investors in a letter reviewed by The Wall Street Journal.

U.S. open-end bond mutual funds collectively personal greater than $11.four billion of Puerto Rico bonds, or simply over 15 % of its excellent debt, in response to a Morningstar report. The default is the first time in Puerto Rico’s history that it has failed to pay back money owed on time.

A vendor pulls his ice cream cart past beachgoers on La Pe?a del Perro beach in San Juan, Puerto Rico, July 18, 2015.

Government Development Bank President Melba Acosta Febo said Monday that Puerto Rico made a partial payment of $628,000 interest.

Debt restructuring will help the island, but a long-term solution must also include structural reforms to address its labor market and other costs of doing business, experts told CNBC.

“Puerto Rico’s illness is a chronic condition”.

“Depreciation is not a possibility, but I don’t think they can do it through internal devaluation”, said Anne Krueger, a former first deputy managing director of the worldwide Monetary Fund and senior research professor of global economics at the School of Advanced worldwide Studies at Johns Hopkins. Puerto Rico has the same amount of debt that New York State has, but the population of Connecticut. Moreover, they say, one reason they decided to loan money to the economically distressed commonwealth is precisely because it could not declare bankruptcy.

Puerto Rico’s government passed its own law last year that enabled it to enter Chapter 9 bankruptcy protection, but the Supreme Court overruled it as unconstitutional. Only a few of the hedge funds holding Puerto Rico’s debt, including so-called “vulture” lenders, are publically named.

“Puerto Ricans are American citizens who should be treated equally, and I will continue to call on Congress and the administration to provide Puerto Rico with the flexibility it needs to grow its economy and pay its debts”. The deadline for an actual payment default is August 1, and it doesn’t look like they can authorize payment with the legislature out of session until well past that date.