News·2 min read

Puerto Rico's Debt: How it got started

puerto rico bill
Sep 28, 2017

The story

Puerto Rico’s in trouble. Its debt is around $74 billion and


officially filed for bankruptcy protection.

Cough, I know Puerto Rico's not a US state, cough

Nope, not a state. It’s a commonwealth that the US

said ‘mine’ to

in the late 1800s. Which means Puerto Rico is like a college kid --

kinda independent, kinda not

So how did its problems start?

The US gov. used to give major tax breaks to corporations operating in Puerto Rico, which drove a LOT of business to the island. But in 2006, Congress let those tax breaks


. Cue businesses using the pullout method. And then Puerto Rico’s economy went into a recession. People

started leaving the island

, which meant fewer people were paying taxes. Lower tax revenue meant Puerto Rico had to cut back on public services, and hike tax rates. Which caused even more people to leave the island. A decade later, Puerto Rico is

still in a recession

Where did all the debt come from?

Puerto Rico has been able to borrow money without a lot of raised eyebrows thanks to -- once again --

a US tax break

Is Puerto Rico the new Greece?

Not quite. Greece’s debt is mostly held by public lenders (think: eurozone, IMF). Puerto Rico’s debt is mostly in the hands of private investors (think: hedge funds, mutual funds, individuals), who are now caught holding the $74 billion bag. And unlike Greece, whose economic issues

put the whole eurozone at risk

, the US economy

doesn’t have a huge overall stake

So what happens now?

Puerto Rico’s telling investors it really, really can't pay that Venmo request. So it's headed to a federal court where a judge will help the island

restructure its debt.

This is unprecedented because normally US states can't file for bankruptcy. But Puerto Rico can get away with it since it's not a state. Bad news for those investors because it's looking like the court will force them to take some pretty steep losses. And that might end up hitting

American wallets

What about the hurricane?

What is the Jones Act?


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