Bob Weihe clutches an ice cold beer while gazing out of the fourth story, door-sized windows of his almost 400-year-old apartment building overlooking old San Juan and the Atlantic Ocean. Looking at Weihe you would never know Puerto Rico is entering a new world -- default.
"The United States owes trillions of dollars, Puerto Rico owes a few billion. Everybody owes a little bit...it's pretty much business as usual," he said. But those billions of dollars threaten to make life on the island Weihe loves much more difficult for residents, as well as millions of American investors on the mainland United States. See how Bob lives here.
Puerto Rico's default on $58 million dollars it owes bond holders is, according to financial analysts, the first of what could be several strategic defaults designed to force bond holders to restructure some of the commonwealth's $73 billion in outstanding debt. The government is drowning in debt and operating with a $703 million deficit this fiscal year. Borrowing money to close the gap will now cost Puerto Rico even more if there is a lender willing to take the risk and make it even harder to pay for public services and other obligations.
Luis Vega Ramos, a member of Puerto Rico's House of Representatives, says the island will pay its debt but not all of it. "We have to address the bull in the china shop which is that the debt service Puerto Rico has, as it is structured today, is too immediate, too big for Puerto Rico to meet," he said.
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Representative Ramos has introduced legislation to change the Puerto Rican constitution which currently requires the commonwealth to pay all debts first before any other obligations. "What we need to do is restructure it not to avoid it, not to weasel out of it as some people say, but as to make sure that we can comply with our obligations in a way that promotes Puerto Rican economic growth," said Ramos. Watch more of Representative Ramos here.
That won't be easy. Puerto Rico is suffering from an almost 10 year recession during which hundreds of thousands of citizens have left and moved to the mainland United States to find jobs. There are three and a half million people still living in Puerto Rico who expect their government to restore prosperity but citizens like John Mudd, a respected lawyer who specializes in Federal and Commonwealth law worry elected officials are trying to save their own necks instead of Puerto Rico. "You look at the budget. There's $28 billion dollars in the budget, there is money. The problem is the government decided it is better to keep employees in the government and not fire anybody than not be re-elected, simple," he said. Hear more on why Attorney Mudd is skeptical of Puerto Rico's officials here.
Representative Ramos says the government has cut $2 billion from its budget and the only portion of that budget that is growing is the money to service debt. "The most important problem here is there is no formal process or structure in which Puerto Rico and its debt holders can restructure in a situation as we have right now," he said. But Mudd thinks restructuring the debt is never going to happen and courts in Puerto Rico and the United States will force the Commonwealth to make good on its payments. "The constitution gives you a cause of action to go against the secretary of the treasury and order him by the courts to pay and I have no doubt that each and every court...will say you are going to pay."
Mudd says it could take a few months to a few years for investors to get all of their money but he believes those willing to wait out the Puerto Rican government will recover 100 cents on the dollar.
Bob Weihe could care less whether the debt is paid in full or restructured. For him the party will continue. "You end up keep going and you finance things and the services keep going and the water stays on, the electricity stays on and everybody keeps going out Friday night drinking beer and it's business as usual."