Puerto Rico’s Debt Downgraded to “Junk” Status · Global Voices
Ángel Carrión

What everybody feared finally happened: Puerto Rico’s debt was downgraded to junk or speculative level on February 4, 2014, by the rating agency Standard & Poor’s. The consequences of degradation had already been mentioned in a previous article [es] by Sergio Marxuach, the Director of Public Policy of the Puerto Rican based think tank Center for a New Economy:
A U.S. quarter, or peseta, as it’s called in Puerto Rico. The expression “everything has gone to hell now” [in Spanish the expressions plays with the word “peseta” that means “quarter”] is commonly used to mean that the cost of living has suddenly gone up or that life has suddenly got more complicated. Image from the public domain, taken from
Wikimedia Commons.
… [U]na degradación del crédito de Puerto Rico a nivel “chatarra” tendría repercusiones adversas para todos los que vivimos en Puerto Rico ya que desataría una crisis financiera. Eso significa, entre otras cosas, que: el gobierno tendría poco o ningún acceso a los mercados financieros; veríamos una depreciación del valor de los bonos y obligaciones de Puerto Rico de entre 30% y 50%; la liquidez y la solvencia de las instituciones financieras y compañías de seguro en Puerto Rico podrían verse afectadas adversamente; veríamos un aumento en las tasas de interés y una contracción significativa del crédito; y aumentarían tanto las quiebras como el desempleo. Nadie en Puerto Rico estaría inmune de los efectos de esa tempestad.
Degrading Puerto Rico’s credit to ‘junk’ level would have adverse repercussions for everybody who lives in Puerto Rico because it would set off a financial crisis. That means, among other things, that the government would have little or no access to financial markets; we would see a depreciation between 30 to 50% of the value of Puerto Rican bonds and obligations; the liquidity and solvency of financial institutions and insurance companies in Puerto Rico could be adversely affected; we’d see an increase in interest rates and a significant credit crunch; and an increase in bankruptcies and unemployment. No one in Puerto Rico would be immune from the effects of this storm.
The degradation of the Puerto Rican debt comes after a series of unpleasant measures implemented by both the New Progressive Party and the Popular Democratic Party, which is currently in power. Among the measures implemented were the laying off thousands of public employees, the imposition of new taxes, and reform of the retirement systems. The Government Development Bank (BGF in Spanish) of Puerto Rico and the Department of Treasury issued a joint press release to calm the concerns of the public, but especially of investors:
Si bien estamos decepcionados con la decisión de Standard & Poor’s, seguimos comprometidos con la implantación de nuestros planes fiscales y de desarrollo económico. Creemos que la comunidad inversora reconocerá oportunamente el impacto positivo de las reformas que la Administración [del Gobernador Alejandro] García Padilla ha implantado.
Entendemos que S&P reconoce los esfuerzos significativos de Puerto Rico hasta la fecha para enfrentar problemas estructurales de mucho tiempo, según queda demostrado por nuestra significativa reforma de retiro, el incrementar la independencia de una serie de corporaciones públicas y los recientes aumentos en los recaudos.
[…]
Estamos confiados en que tenemos a mano liquidez para satisfacer todas las necesidades de liquidez hasta fines del año fiscal, incluyendo cualquier necesidad de efectivo que surja como resultado de la decisión de hoy.
While we are disappointed with Standard & Poor’s decision, we remain committed to the implementation of our fiscal and economic development plans. We believe the investment community will recognize the positive impact of the reforms that the Garcia Padilla Administration has enacted in due course.
We appreciate that S&P recognizes the Commonwealth’s significant efforts to date to tackle long- term structural issues, demonstrated by our significant pension reform, increasing the independence of a number of public corporations, and recent revenue increases.
[…]
We are confident that we have the liquidity on hand to satisfy all liquidity needs until the end of the fiscal year, including any cash needs resulting from today’s decision.
However, Cate Long, market analyst of municipal bonds for the Reuters news agency, who has closely followed Puerto Rico’s situation during the past few years indicated:
Note to financial media covering Puerto Rico & other debt issuers. No one is ever gonna say publicly that they don't have adequate liquidity. — Cate Long (@cate_long) February 5, 2014
For several months, there has been a climate of pessimism in Puerto Rico with regard to the economy, if Twitter comments serve as a barometer for the national mood:
Todos tenemos ahora mismo mejor crédito que nuestro gobierno…
— Ana Maria CV (@anamaria_cv) February 4, 2014
Right now we all have better credit than our government…
Y llegó el #chatarrazo, ahora sí que esto se puso muuuuuyyy malo… — José Armando Santos (@jsantosfigueroa) February 4, 2014
The ‘junk’ is here, and now the situations is verrrrrrry bad…
Ahora sí se pusieron los “eggs” a peseta…#créditopr #pumcayólapiedra
— Karleen Cortes (@KarleenCortes) February 4, 2014
Things have definitely gone to hell now.
Of course, there were also humorous comments amidst the preoccupation:
Anunciamos que, por el momento, no degradáremos sus tuits. Pero mantenemos una perspectiva negativa. #Chatarrazo #CréditoPR — Licen Mangota BB (@ElLicenDice) February 4, 2014
We announce that for now, we will not downgrade your tweets. But the outlook remains negative.
Janizabeth Sánchez produced a Storify [es]  with more Twitter reactions.