Should The U.S. Let Puerto Rico Go Bankrupt?

Puerto Rico is $72 billion in debt, but it can't declare bankruptcy as a territory. So should the U.S. come to Puerto Rico's aid?

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Earlier this month, Puerto Rico defaulted on roughly $174 million it owed in debt payments. Altogether, the island territory owes about $72 billion to its creditors-an amount so large that Puerto Rico's governor called it "not payable." To understand how Puerto Rico got into such bad financial straits, it's important to take a step back and place it in historical context. In 1976, U.S. lawmakers allowed corporations to build production plants on the island without paying any federal income tax. This led to a surge in factory construction and, for a period, over half of U.S. pharmaceutical drugs were manufactured in Puerto Rico.

By 1996, however, these tax credits were phased out and Puerto Rico entered into recession. The default in January could be the first of many. Many are looking to the U.S. government to see how it will respond. Currently, Puerto Rico cannot file for Chapter 9 bankruptcy the way Detroit, Michigan or Stockton, California did. As a U.S. territory, it is not entitled to such protections under current U.S. policy. There's some momentum from Democrats to allow Puerto Rico to file for Chapter 9, but Republicans are less inclined to support that approach. GOP lawmakers are instead advocating for a capped $3 billion in aid along with tax breaks for Puerto Rican citizens.

Learn More:
Why Congress Should Let Puerto Rico Declare Bankruptcy (newyorker.com)
"It hasn't exactly been a quiet week in the world's debt markets."

Senate Republicans Introduce Bill for Puerto Rico Relief (nytimes.com)
"Under pressure to help Puerto Rico avoid a bond default on Jan. 1, Senate Republicans introduced a bill on Wednesday to extend several forms of assistance to the island."

Chapter 9 - Bankruptcy Basics (uscourts.gov)
"The first municipal bankruptcy legislation was enacted in 1934 during the Great Depression. "

Misguided Plan for Puerto Rico Would Set Dangerous Precedent (heritage.org)
"Puerto Rico faces an imminent financial crisis caused by decades of economically harmful policies, prolific government spending, and broken-if not corrupt-governance."