Puerto Rico's Governor Alejandro Garcia Padilla said Monday that his state's public debt is not payable, and he will seek to gain concessions from the island's creditors.
“The debt is not payable...there is no other option. I would love to have an easier option. This is not politics, this is math,” said Garcia in an interview with the New York Times last week.
Much of Puerto Rico’s $73 billion debt is held by individual investors on the United States mainland, in mutual funds or other investment accounts.
Puerto Rico's bonds were popular with U.S. mutual funds because they were tax-free, but hedge funds and distressed-debt buyers began stepping in to buy up debt.
Meanwhile, the economy worsened and its credit rating collapsed, making the island rely even more on creditors to fund hospitals and public infrastructure.
According to the Wall Street Journal, analysts believe the island will run out of cash as early as July.
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A recent report that Governor Garcia commissioned last February warned about the island's looming crisis. “There is no U.S. precedent for anything of this scale or scope,” alerts the report.
"The situation is dire, and I mean really dire," Reuters quoted former IMF economist Anne Krueger, co-author of the report, as saying on Monday.
"The needed measures may face political resistance but failure to address the issues would affect even more the people of Puerto Rico," she said.
The state is facing a rising unemployment rate, around 14 percent, and reports of violence has also surged.
Analysts have pointed out that vulture funds and other speculation-based investors have been moving from other economies to Puerto Rico.
Vulture funds are insisting the island fully repay its debt, even though they were aware when buying that Puerto Rico’s bonds were labeled high risk.