Here’s SocGen’s Aneta Markowksa on Puerto Rico as it moves closer to default.
Will it impact the US economy?
The Commonwealth of Puerto Rico is a US territory. As such, it is directly overseen by the US federal government, but unlike states it does not share sovereignty with the federal government. Importantly, Puerto Rico is excluded from US economic statistics and is neither a part of GDP nor employment data. There may be some cost to the US government through various aid and entitlement programs which would serve as automatic stabilizers in the event of a deep economic contraction in the Commonwealth (e.g. Puerto Rico residents are eligible to receive the same Medicare, Medicaid or unemployment insurance benefits as US residents). Of note, the Commonwealth is also part of the Federal Reserve system and belongs to the Second District overseen by President Dudley. The New York Fed has been warning about Puerto Rico’s deteriorating fiscal situation for some time (e.g. here).
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