American investors are wondering what effect the situation in Greece will have on the United States and its economy. But some observers say the investors should be more worried about the debt problems in a U.S. territory -- the island of Puerto Rico.
Alejandro Garcia Padilla is the governor of Puerto Rico. Last month, he said the territory could not pay its $72 billion public debt. This amount includes money owed by the central government, cities and publicly-owned businesses, like power companies.
Puerto Rico is the third-largest issuer of state and local debt in the United States. Only California and New York have more debt.
Much of the island’s debt is held by individual American investors. They got possession of it through ownership of shares in mutual funds and other investments.
Some observers say the U.S. economy could be hurt if Puerto Rico is not able to pay its debts. They believe the island may be unable to make its required debt payments. If that happens, investors could ask a court to force the territory to make the payments.
Puerto Rico’s debt problem has not received as much attention as the economic crisis in Greece. That is partly because the territory’s problems are not new. Puerto Rico has been in an economic recession since 2005. That was when the U.S. Congress made changes to a tax program that had given businesses financial aid for moving to the island. In the years since the program was changed, the territory has had to borrow money to pay its debts.
Pedro Pierluisi serves as Puerto Rico’s Resident Commissioner in the U.S. House of Representatives. He wrote about the economic problems last week in The New York Times newspaper. He said that, on the island, “the unemployment rate, poverty rate and median household income have always been far worse than any state’s. The main cause is inequality.”
He also said Puerto Rico does not have much power in Congress because it is only a territory. Although Puerto Ricans are U.S. citizens, they do not have the right to vote in presidential elections or elect someone to the Senate. The territory sends a delegate to the House, but she or he cannot vote on legislation, except during committee meetings.
Mr. Pierluisi has proposed legislation that would permit Puerto Rico to declare bankruptcy. American cities can ask for a court’s approval to cancel debts, but territories cannot.
Words in This Story
issuer – n. someone or something that develops, registers and sells financial instruments for the purpose of financing its operations
mutual fund – n. an investment program that trades in shares of stock or other investments
bankruptcy – n. a legal term for being unable to repay debts to creditors