Puerto Rico rings in New Year by defaulting on debt
Puerto Rico Governor Alejandro Padilla said the island will not make a $35.9 million payment to its Infrastructure Finance Authority nor another $1.4 million payment to its Public Finance Corp.
|This is just a small fraction of the $1 billion in debt that is due on Monday. The government already defaulted on payments to its Public Finance Corporation back in August. Paying off general obligation debt is a priority and on January 4th the government will be required to make a payment of $328.7 million. In total, Puerto Rico has $70 billion in total debt it claims it cannot pay. The government would like to declare bankruptcy. It cannot do this without the support of U.S. Congress. Hedge funds and other creditors are lobbying hard to see that this does not happen.|
In the last year, as Puerto Rico’s spiraling debt effectively prevented it from borrowing on ordinary credit markets, creditors began selling off Puerto Rican debt, as David Dayen reported in the American Prospect. A select group of big investors, most of them hedge funds, stepped in to buy the debt for a mere fraction of its original value..These hedge funds are known as “vultures” because of their attempts to squeeze a profit from a penniless debtor’s proverbial carcass. Vultures buy the debt of cash-strapped sovereign nations -- think Greece and Argentina -- at discounted rates from other investors, who have grown scared they will not be paid back
But a group of hedge funds that includes D.E. Shaw -- a firm headed by top Hillary Clinton donor David Shaw -- played a key role in defeating the bipartisan effort with a multi-front lobbying offensive, as The New York Times reported at length. Blue Mountain, another hedge fund in the group, launched a sophisticated astroturf campaign casting the bill, which would cost taxpayers nothing, as a “bailout” that would harm ordinary seniors whose retirement plans rely on returns from Puerto Rican bonds.Rubio withdrew his support under pressure. Joseph Stiglitz, Nobel Prize-winning economist says of the hedge funds and financiers:
“What they are doing, by getting all the resources for themselves, is undermining the viability of Puerto Rico as a commonwealth. They want their money now, and they want to get the rules set so that they can make money for the next 20 years.”
Read more: http://www.digitaljournal.com/business/business/op-ed-puerto-rico-to-begin-2016-by-defaulting-on-debt/article/453732#ixzz3wPbQLXJ9