Puerto Rico is on the verge of default

SAN JUAN, PUERTO RICO – NOVEMBER 12: A couple walks past a vacant building on November 12, 2013 in the upscale Condado neighborhood of San Juan, Puerto Rico. The island territory of the United States, Puerto Rico, is on the brink of a debt crisis as lending has skyrocketed in the last decade as the government has been issuing municipal bonds. Market analysts have rated those bonds as junk and suspect it’s 70 billion dollar debt might be unserviceable in the near future. With no industry other than tourism and the recent collapse of the real estate market, the way out is unclear. (Photo by Christopher Gregory/Getty Images)

While all the focus is on Greece there is another government that looks like defaulting on its debts: Puerto Rico’s.

Speaking Sunday evening the island’s governor, Alejandro García Padilla, has concluded that the commonwealth could not pay its roughly $72 billion in debts. The admission will probably have wide-reaching financial repercussions, according to the New York Times.

Padilla suggests they will “probably seek significant concessions from as many as all of the island’s creditors, which could include deferring some debt payments for as long as five years or extending the timetable for repayment”.

Puerto Rico, as a commonwealth territory of the U.S., does not have the option of bankruptcy. A default on its debts would most likely leave the island, its creditors and its residents in a legal and financial limbo that, like the debt crisis in Greece, could take years to sort out, according to the Times.

Much of Puerto Rico’s debt is held by U.S. investors, either through mutual funds or other investment accounts.

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