While the world’s attention is focused on the economic meltdown of Greece, and Obama’s boast that Greece “isn’t America’s problem”. There’s something however that Obama isn’t boasting about and may very well rival and perhaps even surpass the “Greek economic tragedy”, in that our partner down south Puerto Rico may soon have its own version of an economic meltdown, as Puerto Rico Governor Alejandro Garcia Padilla has just announced that his country's debt of $72 billion dollars is “not payable”.

For those not familiar with the unique relationship between the two countries, Puerto Rico is a territory of the United States; however it’s also a commonwealth with its own constitution, and perhaps that’s where the economic issues lie, in that Puerto Rico’s economy has been contracting for nearly a decade, and employment has shrunk by 14% since 2005. Its 12.4% jobless rate would be higher if not for its astonishing 40% labor participation rate, compared to 63% nationwide.

The island’s population has declined by roughly 300,000 in a decade as young people flee to the mainland, where they can work as U.S. residents.

Moreover unlike a traditional sovereign state Puerto Rico isn’t free to fully chart its own economic course, and must adhere to certain restrictions and a complex system of economics directly linked to the mainland (America).

The island has made some reforms at the margin, including a 10% cut in the public workforce and a pension reform. But the government and most of its public agencies are still running deficits with liquidity crises looming.

U.S. states can’t declare bankruptcy, but this constitutional constraint doesn’t apply to Puerto Rico since Article 4 gives Congress the “Power to dispose of and make all needful Rules and Regulations” of territories.

However whether a financial solution can be worked out or not, really doesn’t matter, because at the end of the day whatever deal is struck the American taxpayer will be left holding the financial bag.

h/t: Live Leak



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