Puerto Rico has been experiencing a severe debt crisis that continues to ravage the commonwealth's economy. On Aug. 3, 2015, Puerto Rico paid $628,000 towards the $58 million that was due at the time. The inability to pay the full amount pushed Puerto Rico into default for the first time in its history. Unfortunately, the Puerto Rican Constitution does not state that the government has the power to declare bankruptcy, but that it must work with bondholders to find the proper solution. While Puerto Rico is continuing to talk with its creditors, there certainly is a desperate need to begin working down the $72 billion tab that the nation currently faces.

While Puerto Rico faces a long road to recovery, it is important to analyze how and where this debt crisis began.

Massive Government Spending

Beginning in the early to mid-1970s, Puerto Rico began kicking government spending into full gear. In 1975, Puerto Rico reached its peak of nearly 20% for government spending as a portion of gross domestic product (GDP). This was a larger part of the economy being spent than even the United States during the ending stages of the Vietnam War. By 1984, Puerto Rico fell below the 15% government spending to GDP level, but it still remained above 10% in 2012.

Puerto Rico’s government has been spending lots of money over the past several decades, and the tab has finally come due. While GDP did initially kick up from the 1970s into the early 2000s, the global debt crisis plunged Puerto Rico into its current situation. In fact, Puerto Rico has not seen its economy grow since 2006, when its GDP growth rate came in at 0.5% for the year, until 2012, when the economy briefly saw an uptick of 0.5% in GDP growth. Since then, GDP has resumed its decline, with the Puerto Rican economy losing almost 1% in economic growth in 2014.

Drought, High Unemployment and Emigration Factors

The fiscal situation in Puerto Rico is horrendous. The U.S. government has already stated there will be no bailout of Puerto Rico, but it has considered allowing the nation to have Chapter 9 bankruptcy rights, just as all 50 U.S. states have.

Puerto Rico's debt crisis is made worse by a severe employment crisis. The unemployment rate stands around 12%. Puerto Rican citizens are leaving their homes in favor of moving elsewhere, such as the U.S., in the hopes of finding more economic stability. This emigration hurts the economy; citizens who leave are not spending their money in Puerto Rico, nor are they working in Puerto Rico, which would raise taxes and revenue for the government. To make matters worse, Puerto Rico is facing a severe drought that has forced the government to start a water rationing program, often turning off tap water for a couple days to cities and towns outside of the tourist regions.

Overall, Puerto Rico is facing a very serious debt crisis, rivaling that of Greece, and it could linger for several more years. Puerto Rico's government spent massive amounts of money for several decades. While Puerto Rico's GDP initially saw a relatively minor uptick (compared to the level of spending), the house of cards caved in during the 2008 recession and the nation has been unable to regain its footing. Ultimately, Puerto Rico may need to negotiate and lobby for the ability to declare bankruptcy. Negotiations between creditors and the government have made little progress in the last several months. Time is not on Puerto Rico's side, and continuing to wait and kick the can down the road will lead to even more severe consequences.

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