Storms complicate Puerto Rico’s debt problems
The destruction in Puerto Rico caused by Hurricane Maria will exacerbate the economic problems facing the deeply-indebted Caribbean island.
Analysts said a chief risk is that the storm will accelerate the population decline on the island.
Puerto Rico’s population has already fallen by more than 8% since 2010.
Puerto Rican Governor Ricardo Rosello warned on Monday of a “massive exodus” without federal aid for recovery.
In May, Puerto Rico declared a form of bankruptcy, seeking to restructure more than $70bn (£52bn) in debt.
Guarding against rapid flight is critical to sustaining the island economy – and its ability to repay what it owes, analysts said.
“Really, the fundamental thing is if people leave the island, will they be willing to come back,” said Cate Long, founder of the research firm Puerto Rico Clearinghouse.
‘Punch to the gut’
Puerto Rico is facing the collapse of its electricity and communications network as it evacuates flooded families and examines damaged infrastructure. A major dam is at risk of collapse.
Insured losses across the Caribbean are already estimated to range from $40bn-$85bn, with about 85% of the damage found in Puerto Rico, according to disaster modelling firm AIR Worldwide.
The island, home to about 3.4 million people, had been working on a budget which includes cuts aimed at addressing the fiscal situation.
But Mr Rosello told broadcaster CNN that the hurricanes were “a game changer” for those discussions.
“This is a completely different set of circumstances,” he said.
US federal lawmakers on Monday pledged swift aid to address the situation.
US President Donald Trump declared an emergency last week, authorising federal assistance. Homeland Security Advisor Tom Bossert and Federal Emergency Manager boss Brock Long visited the island on Monday.
But some Democrats have said relief is coming too slowly.
“The situation is desperate. Puerto Rico has taken a serious punch to the gut and they need our help,” Sen Chuck Schumer said in a statement.
The federal panel that oversees Puerto Rico’s finances said it would work to speed recovery funds.
The island’s debt means that it cannot borrow money for the emergency on its own.
Its status as a commonwealth and not a state could also complicate the relief effort, influencing how much funding Congress is willing to authorise, said Ted Hampton, an analyst at ratings agency Moody’s, which issued a report on Monday examining the impact of the disaster on the debt.
The price of Puerto Rico debt declined on Monday, as traders factored in possible losses.
But the response will be critical to how the restructuring proceeds and whether bondholders will have to shoulder significant write-offs, Mr Hampton said.
“There is going to be a pause and disruption near-term, but we’ve often seen by the same token that after devastating hurricanes the influx of federal aid and other funds… can really spur an economy – so a year from now, or maybe two years from now, who knows?” he said.