On Monday, Puerto Rico missed a $422 million payment to its debtors. It’s not the first time that the island will default on a payment, but it is so far the largest, most notable, and most concerning development since a dismal report last summer about the territory’s economic standing.
In a speech Sunday night, Puerto Rico Governor Alejandro García Padilla said, “Faced with the inability to meet the demands of our creditors and the needs of our people, I had to make a choice. I decided that essential services for the 3.5 million American citizens in Puerto Rico came first.” The island has long struggled with unemployment and poverty, but the financial situation on the island has gotten continually worse over the past 10 months; in order to pay out the debts owed on Puerto Rican bonds, the territory has reduced funding to schools and health-care programs and raised its sales tax.
García Padilla has now instituted a debt moratorium, meaning that the territory won’t spend money on debt payments for the time being (though for now it will continue to make interest payments on that debt). Monday’s missed payment is significant both because of the sum of money is large and because the Government Development Bank, the island’s main bond issuer, is a respected financial entity.