Puerto Rico's bankruptcy may be biggest ever for US

Puerto Rico's bankruptcy may be biggest ever for US

Puerto Rico's long-running debt crisis-a case study in blue model failure, brought about by a bloated public sector workforce and inability to control pension obligations-reached a critical milestone yesterday as the island filed for bankruptcy under a special system created by Congress past year.

The island's economy has been in recession for almost 10 years, with an unemployment rate of about 11 per cent, and the population has fallen by about 10 per cent in the past decade.

Puerto Rico's filing occurred a day after several major creditors sued over defaults of its bonds.

A bond insurer looking to minimize losses on $5.4 billion in Puerto Rico bond guarantees has fired the first legal volley following the USA territory's entry into court protection.

Puerto Rico is barred from using the same bankruptcy law provisions benefiting other US municipalities.

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The filing includes only Puerto Rico's central government, which owes some $18 billion in debt backed by the island's constitution.

U.S. territories are barred from filing for a traditional bankruptcy like most USA cities or states.

Puerto Rico's economy has been in a recession for almost 10 years, with an unemployment rate of about 11 percent.

The financial problems of the Caribbean island - which has been locked in recession for more than a decade - have shaken the large market for US municipal bonds, especially after Detroit declared bankruptcy in 2013. Since 2007, the Commonwealth said it has seen a 14 percent decline in gross national product, a 23 percent decrease in employed persons and a 10 percent drop in population. The restructuring through courts will once again protect Puerto Rico from such lawsuits.

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