With no power and massive damage, Puerto Rico will have to weather the financial storm of bankruptcy
Hurricane Maria made landfall Wednesday morning in Puerto Rico, ripping across the U.S. territory still reeling from damage inflicted by Hurricane Irma. The Category 4 hurricane left the island badly battered, knocking out its power—and it may take months for its electricity to come back online. But as Puerto Rico looks toward rebuilding, it will have to face a financial storm that everyone saw coming: its bankruptcy.
The reasons for Puerto Rico’s financial insolvency are complicated, but essentially the local government defaulted on $72 billion in bonds beginning August 2015. It tried to update its bankruptcy code to gain some flexibility, but the U.S. Supreme Court ruled its plan to restructure its public utilities’ debt violated federal law. So, after years looking for a solution to its woes, the commonwealth filed for bankruptcy protection in May 2017, the day after its creditors filed a lawsuit looking to collect on the debt. Puerto Rico Electric Power Authority, one of its many agencies bogged down by debt load, itself filed for bankruptcy in July.
“Bankruptcy may not immediately change the day-to-day lives of Puerto Rico s people, 45% of whom live in poverty,” noted Reuters the day of the state’s May filing, “but it may lead to future cuts in pensions and worker benefits, and possibly a reduction in health and education services.” However, the island still not recovered from the recession and has amassed this debt while paying for basic services for the 3.5 million U.S. citizens who live there.
Fast forward four months to now, and Puerto Rico has to an electrical grid that’s inoperable, homes that are destroyed, underfunded hospitals that are packed, and a tourism industry that just washed away.
Puerto Rico is beginning to look like The Perfect Storm, which is the true story of how several storms combined to decimate the East Coast in 1991. Prospects for a turnaround seem sunk.
What lies ahead for Puerto Rico is anyone’s guess. In the near term, President Trump declared the commonwealth a disaster, promising federal assistance to the island. But grants for temporary housing and home repairs won’t be enough to make Puerto Rico whole again. At this point, it’s unclear what will.