Island pays just $628,000 toward a $58m debt due on Monday as lack of liquidity hampers its ability to dig out from under estimated $72bn debt load

Puerto Rico missed its first debt repayment on Monday, the first time the troubled US commonwealth has failed to pay its bills.



The island paid just $628,000 toward a $58m debt due to creditors of its Public Finance Corporation. While the default was expected, it is likely to worsen the financial situation for the island as it struggles with debts estimated at $72bn.

“This was a decision that reflects the serious concerns about the Commonwealth’s liquidity in combination with the balance of obligations to our creditors and the equally important obligations to the people of Puerto Rico,” the territory’s government development bank president, Melba Acosta Febo, said in a statement.



Late last month Víctor Suárez, chief of staff for governor Alejandro García Padilla, warned that the government did not have the money for the $58m of principal and interest due on Public Finance Corporation bonds.



The debts are a fraction of the $5bn in principal and interest that Puerto Rico is due to pay over the next 12 months, according to an analysis of the commonwealth’s debts compiled by Bloomberg.

In June, García Padilla told the New York Times that Puerto Rico was in a “death spiral” and could not pay its debts. “The debt is not payable,” García Padilla said. “There is no other option. I would love to have an easier option. This is not politics, this is math.”

The island of 3.6 million people has an unemployment rate of 12% – more than double the US average of 5.3% – and has taken on more debt per capita than any other American state as the country has struggled to raise cash and tax breaks have encouraged hedge fund investors to pour money into Puerto Rico.

Puerto Rico’s financial crisis has been dubbed “America’s Greece” and may prove the largest test to date of the $3.7trn market for debt sold by US state and local governments.

The municipal bond market was last tested by Detroit’s 2013 bankruptcy, the largest in US history. But since Puerto Rico is not a state it cannot take advantage of the same bankruptcy laws that protected Michigan’s decision to force bond holders and the city to negotiate a settlement.

Bond holders have already called on Puerto Rico to cut spending on education and in other areas in order to meet their obligations. The island has already closed down almost 100 schools so far this year.