Puerto Rico’s debt crisis is about to get worse
Fortune - 05/10/2016
Puerto Rico’s debt, just over $70 billion, is comparable with Argentina’s—around $93 billion at the start of its 2001 crisis. Puerto Rico’s debt-to-GDP ratio of 70% isn’t too remote from Argentina’s 2001 ratio of 65%. In a debt crisis, governments can increase taxes and fees and reduce government services. Puerto Rico has already done so. In the past couple of years, the Commonwealth’s Treasury Department has dramatically stepped up embargoes on businesses for failure to pay back taxes, it raised the business-to-business tax rate from 4% to 10.5%, and it increased the Sales and Use Tax rate from 6% to 10.5%. Puerto Rico now has the highest sales taxes of any U.S. state or territory. The resulting hardships have many middle-class islanders pondering whether they should stay in Puerto Rico or migrate to the U.S. mainland, as hundreds of thousands of Puerto Ricans have done in the past decade.