Puerto Rico’s island paradise may be teetering on the precipice of a financial collapse that would make Detroit’s implosion look modest by comparison, economists and analysts warn.

Detroit, a city of about 700,000, went bankrupt after piling up $18 billion in debt. Puerto Rico, by contrast, has 3.7 million residents -- and faces a whopping $87 billion in debt and unfunded pension liabilities.

“The Puerto Rican economy is near collapse,” prominent Puerto Rican economist Gustavo Vélez tells Newsmax. “The government is running out of money and there is no end in sight.”

Puerto Rico’s island paradise may be teetering on the precipice of a financial collapse that would make Detroit’s implosion look modest by comparison, economists and analysts warn.

Detroit, a city of about 700,000, went bankrupt after piling up $18 billion in debt. Puerto Rico, by contrast, has 3.7 million residents -- and faces a whopping $87 billion in debt and unfunded pension liabilities.

“The Puerto Rican economy is near collapse,” prominent Puerto Rican economist Gustavo Vélez tells Newsmax. “The government is running out of money and there is no end in sight.”

Puerto Rico Senate President Eduardo Bhatia told bond analysts in New York on Monday that the Obama administration is “wondering how they can help Puerto Rico send a very strong signal of stability right now.”

He added that island officials are expecting “an announcement” soon from administration officials. But that appears to be at odds with a Bloomberg report that a U.S. Treasury Department spokeswoman said no plan is afoot to bail out the island’s economy.

In September, UBS AG and other U.S. brokerage firms warned some 40,000 U.S. investors and brokers to stay away from the bonds that Puerto Rico uses to finance its deficit. Not long afterwards, the island’s bond yield – the amount it has to offer to lure investors – rose to 9.29 percent, surpassing even that of Greece. Predictably, Internet headlines began referring to the beautiful tourist haven in the Caribbean as “America’s Greece.”

Puerto Rico, however, probably still has some time to work out its finances. Unlike Greece, very little of its debt is short term. But the New York Times reports Puerto Rico Gov. Alejandro Garcia Padilla and other officials are engaging in intense shuttle diplomacy between New York, Washington, and the Caribbean. Their objective: To convince bankers, credit analysts, and political leaders that the island is on a path toward restoring financial stability.

Since assuming office in January, Gov. Padilla has taken several austerity measures. State employees’ contributions to their pension plans were increased from 8.275 to 10 percent.
The retirement age was increased. Utility rates were hiked sharply to bring in more revenue, and new taxes have been imposed as well. So far, financial markets appear almost indifferent to the tough belt-tightening measures, leaving island officials frustrated.

Unlike Detroit, a declaration of bankruptcy for Puerto Rico may not be an option due to its status as a territory, rather than a state. The Times reports the Northern Mariana Islands tried to seek bankruptcy protection in 2012, but that effort was rejected by the courts. The way out of the legal limbo for Puerto Rico would be a financial plan of support enacted by the U.S. Congress. But that would assume Congress is better equipped to deal with Puerto Rico’s budget impasse than it has been dealing with its own.

The Times reports that the President’s Task Force on Puerto Rico has been discussing whether the U.S. Constitution gives Congress the power to impose special fiscal controls. One idea would be for Congress to designate a financial control board led by an official with the power to overrule its local, politically elected leaders. But the legality of such a move has reportedly not yet been established.

Puerto Rico leaders, meanwhile, object to the aspersions cast upon their ability to plug their fiscal liabilities, and insist the island is not on the verge of bankruptcy.

Big Trouble in Paradise: Puerto Rico Faces $87B Collapse

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