Puerto Rico is about to default for the first time in its history
Posted: Aug 3, 2015 1:39 PM CST
(CNN) Puerto Rico is hours away from going into default for the first time in its history.
The commonwealth is not expected to pay $58 million in debt due by the end of today to its Public Finance Corporation. This will hurt the island's residents, not Wall Street. The debt is mostly owned by ordinary Puerto Ricans through credit unions.
A default would be a historic moment in Puerto Rico's economic \"death spiral,\" a term the island's governor, Alejandro Garcia Padilla, has used. The island is struggling with about $70 billion in total outstanding debt, and its economy is in recession.
Related: Who owns Puerto Rico's debt?
On Monday, Puerto Rico must make a monthly debt payment of $483 million. Experts believe Puerto Rico will pay all of that except the $58 million due to the Public Finance Corporation. The government is strategically choosing not to pay the PFC debt because it has very little legal power to fight back in court. That means Puerto Ricans who own the debt have little ability to sue the government if it doesn't pay.
However, other debt that has more legal backing -- some of which is owned by Wall Street hedge funds -- will likely be paid on Monday. Puerto Rico has roughly same amount of debt as New York State -- a very large economy -- and the population of Connecticut.
The island's economy is a mess. Unemployment is more than double the rate in the mainland United States, and Puerto Ricans have been leaving the island in droves to look for jobs on the mainland. That only shrinks the tax base in Puerto Rico even further, making it harder for the island to pay its debts.
Omar Rodriguez left Puerto Rico two weeks ago to move with his wife to Austin, Texas. Rodriguez, 25, is a former government employee and he's never lived outside the island.
Rodriguez has already found one job at a restaurant at the University of Texas, and he thinks he'll tack on another as an assistant teacher at a nearby school. His wife is a teacher too.
Starting a new life in Texas will be an uphill battle, but it's better than the career he left behind in Puerto Rico, he says.
\"I wouldn't imagine having the same quality of life in Puerto rico at the moment and that saddens me,\" says Rodriguez. \"Saying goodbye to my parents [in Puerto Rico], I almost cried...it was a bit unbearable.\"
Padilla, the governor, has put together a team to come up with a plan to restructure Puerto Rico's debt crisis by the end of the summer.
Things are getting worse. Puerto Rico is also going through a real drought. The government is rationing water. Rodriguez says his wife's parents, who live in Trujillo Alto, a town near San Juan, have gone without running water this summer for two straight days at a time.
Other towns that aren't tourist destinations are going days without tap water too, he says. With the school year starting in Puerto Rico again, major questions loom for those on the island.
\"How are you going to teach with dirty bathrooms and no water for two days?\" says Rodriguez. \"At some point the economy and the way of living in Puerto Rico, it's so bad that you start going crazy.\"