Puerto Rico’s ‘Death Spiral’ Can Be Traced Back to One Mistake

August 7, 2015 – In The News
The Business Insider

Michael Sweet was featured in The Business Insider article, “Puerto Rico's 'Death Spiral' Can Be Traced Back to One Mistake.” Full text can be found in the August 7, 2015, issue, but a synopsis is below.

Puerto Rico is $72 billion in debt due primarily to bad tax policy. The island is also unable to file for bankruptcy because its government was not given the right to allow its entities to go through Chapter 9 when the federal bankruptcy act was written.

Michael Sweet noted, “Just because Puerto Rico can't file bankruptcy doesn't mean they can't come up with a bankruptcy-like solution.”

While it’s unclear what may happen next, the island’s government seems to be carefully choosing which of its agencies will have to default.

Sweet described the way the government let its first entity default as "strategic."

“I do think that a facilitated restructuring of the debt on a level that allows the government to stretch things out, the kind of thing you might see in a bankruptcy without going through bankruptcy, is where this thing needs to go and it’s where the government is trying to go.”