Jack Lew: Puerto Rico is in Economic Collapse But Things Could Get Even Worse
EconomicPolicyJournal.com
SUNDAY, JANUARY 17, 2016
From a letter Treasury Secretary Jack Lew sent to congressional leadership on Friday:
Although there are many ways this crisis could escalate further, it is clear that Puerto Rico is
already in the midst of an economic collapse…
Puerto Rico is already in default. It is shifting funds from one creditor to pay another and has
stopped payment altogether on several of its debts. As predicted, creditors are filing lawsuits.
The Government Development Bank, which provides critical banking and fiscal services to the
central government, only avoided depleting its liquidity by halting lending activity and sweeping
in additional deposits from other Puerto Rico governmental entities. A large debt payment of
$400 million is due on May 1, and a broader set of payments are due at the end of June.
Puerto Rico has been shut out of the municipal bond market for more than two years and ran out
of the funding sources traditionally used to finance government operations more than six months
ago. In response to the crisis…
More recently, Puerto Rico has resorted to a series of onerous and unsustainable emergency
liquidity measures, including selling assets from already depleted pension funds; borrowing from
the workers compensation and other insurance funds; and withholding hundreds of millions of
dollars in tax refunds owed to its citizens. Not only do these actions affect the most vulnerable
citizens in Puerto Rico, the unpaid obligations do not go away; they simply accumulate and make
long-term recovery even harder to achieve.
The worsening fiscal and economic situation means real suffering for the people of Puerto Rico… The unemployment rate, at over 12 percent, is more than double the U.S. average.
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