Puerto Rico is in a serious bind over a rising debt to pay for its power utility. A new report in the New York Times today revealed that the Caribbean island is in $146 million of debt to Citigroup, which it must pay back in the next two months. Puerto Rico is also seeking to renew a $550 million dollar credit line from Scotiabank, which is going to be difficult to maintain given its precarious situation. "Puerto Rico’s electrical utility is running out of money and time to negotiate a deal with its lenders," reveals the Times.
Puerto Rico has long been an investor's tax haven, particularly for US investors seeking to take advantage of the nation's lower taxes. Yet a rising national debt has many investors concerned. And indeed, Time Magazine recently predicted Puerto Rico as the 'next financial catastrophe,' explaining that the island is in "dire financial condition." After decades of over-borrowing, Puerto Rico has accumulated a national debt of over $70 billion dollars, despite having just 4 million residents.
Most worrying is that Puerto Rican residents may be left without power. Without the capital to repay loans nor the credit to continue credit lines, things are looking dire for the country's energy: "analysts and investors expect the utility will be forced to restructure its debts to avoid crippling power shortages for Puerto Rico’s 3.6 million residents." Politicians are banking on the 'Recovery Act,' enacted over the weekend by Governor Alejandro Garcia Padilla to allow companies to extend debt and renegotiate labor contracts.
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