Puerto Rico’s freeze on litigation has expired, opening the door for an onslaught of lawsuits. The Associated Press reports that a group of bondholders immediately filed a suit against the Puerto Rican government following a May 1 deadline.
These holders bought $16 billion in bonds which were backed by the U.S. territory’s sales tax, according to AP. Now that the government missed their window of negotiation, the group is arguing that the Rosello administration’s plan to eliminate its $70 billion in debt violates the constitution. AP reports that about a dozen lawsuits targeted the Puerto Rican government before the U.S. Congress put the freeze in place in 2016, protecting the territory from these types of suits.
In a statement to AP, Puerto Rico Chief of Staff William Villafane said that the government could resort to settling in an action similar to bankruptcy. AP reports that this was a few hours before the freeze expired, and the government was yet to reach an agreement in negotiations.
“At least essential services would be guaranteed,” he said.
By most economic standards, the value of a business can be judged by three factors: comparison to sales of similar businesses, earning power, and risk assessment. But when it comes to a whole country’s economic status, it gets more complicated. Puerto Rico has been experiencing economic hardship for the past decade, with the country currently holding about $74 billion in debt.
CNN Money broke down the island’s debt crisis in an analysis last year, calling Puerto Rico “America’s Greece.” CNN attributed the Puerto Rico debt crisis to government overspending, U.S. congress phasing out tax breaks for businesses in Puerto Rico, skilled workers leaving the island, and congress taking away bankruptcy rights.
Some financial experts are unable to predict what will happen if these debts go unpaid.
“There just isn’t enough money,” Matt Fabian, a partner with Municipal Market Analytics Inc. in Concord, Massachusetts, said in a statement to Bloomberg. “Nobody has any idea what’s going to happen.”
Yennifer Alvarez, a spokesperson for Governor Rossello, wrote in an email statement to Bloomberg that the government is unable to confirm judiciary action to handle these debts and money owed to bondholders at this time.
“As a public policy, legal defense strategies are not discussed until they are presented in judicial forums,” she said.