The economic outlook for Puerto Rico hasn’t been optimistic of late, and now has grown worse as the Treasury and White House monitor the commonwealth’s financial health and its ability to tap the bond market.
The data on the otherwise beautiful island paints a bleak picture, much like the economic malaise covering the U.S. Virgin Islands. Unemployment for August was 13.9%, higher than all 50 states. The poverty rate is 45%. Total outstanding debt is $70 billion, or $19,000 for every one of the 3.7 million residents. In the last twelve months, sovereign bonds there have seen downgrades from multiple agencies and now stand only one notch above non-investment grade.
As such, a slew of folks in Washington have been in contact with Puerto Rican officials, including Treasury, the Council of Economic Advisers, and the President’s Task Force on Puerto Rico which encompasses some 20 officials from multiple agencies. Thus far no action has been taken though rumors are abound of Washington guaranteeing or even purchasing Puerto Rican bonds. All parties involved have denied these stories.
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“We have no knowledge of a plan for Treasury to buy Puerto Rico bonds,” said Melba Acosta Febo, secretary of the treasury and chief public financial officer of Puerto Rico.
Sources claim these talks have occurred and it is clear that investors, as well as Washington, understand the dire straits the island is in. The general consensus however, remains that Puerto Rico will enact more self-help procedures, such as budgetary cuts, in the face of stark political approval of what will amount to a bailout.
…observers suspect the federal government understands that Puerto Rico could reach a crisis point where it loses access to the market but desperately needs to borrow. One source said the White House and Treasury have kicked around the “hypothetical” scenario of providing debt assistance to Puerto Rico.