Puerto Rico, an unincorporated territory of the United States, may be closer to statehood than ever in the wake of its current debt crisis. The island territory carries a debt of approximately $72 billion.

 

Puerto Rico defaulted on its bond payments for the first time ever this past August. The island’s lack of liquidity is a serious problem for U.S. investors, as approximately 30 percent of all municipal bond funds in the United States have holdings in Puerto Rico.

 

Puerto Rico's debt chart

(nprcinc.org)

A bill has been introduced in the House of Representatives that would define Puerto Rico as a state under federal bankruptcy laws. This measure would allow the unincorporated territory to reorganize its debt under Chapter nine’s bankruptcy protection. Chapter nine only applies to municipalities, public corporations and utilities; but those entities account for approximately $59 billion of the island’s debt.

 

The current debt crisis is not being helped by the exodus of working class Puerto Ricans. Since 2010, residents of the island have been leaving in droves for the more favorable economic conditions of mainland United States. From 2010 to 2013, an estimated 144,000 residents have left the American territory. This migration is shrinking the tax base and leaving a smaller population to deal with a growing mountain of debt.

 

In the most recent referendum in 2012, 54 percent of Puerto Ricans voted against the island’s current status as an unincorporated U.S. commonwealth. In a separate question on the referendum, 61 percent of voters chose statehood as the most favorable alternative to their current status. A Congressional vote on admission would be required to allow Puerto Rico to officially join the union.

 

Will Congress pass the bill granting Puerto Rico the same bankruptcy protection as a state? Should the United States being doing more to help its territory in this debt crisis? Feel free to leave a comment or find me on Twitter @Andrew_Morse4