Puerto Rico’s Economic Crisis Grows in Maria’s WakeBy
Trump vows to visit and declares the island a disaster zone
National Guard troops are rescuing people from rising waters
All of Puerto Rico has lost electricity. Entire towns are swamped in the deluge. Streets have become rivers and trees have crushed homes.
Hurricane Maria is Puerto Rico’s worst in nearly a century, a double blow as it follows the destructive Hurricane Irma by just two weeks. The costs, both human and financial, have only begun to come into view. This much is certain: the U.S. territory, bankrupted by runaway debt, now confronts an even deeper economic crisis. Four months after the island’s government sought protection from creditors in the nation’s largest municipal insolvency, the odds of a speedy resolution now appear to be dimming. President Donald Trump said Thursday he plans to visit the island and declared Puerto Rico a disaster zone, which helps clear the way for federal assistance.
Puerto Rico has been “absolutely obliterated” by Maria, Trump told reporters in New York, where he is attending the United Nations General Assembly. Catastrophic flooding is still occurring, the National Weather Service said. As of this morning, Hurricane Maria had killed 10 people across the Caribbean, the Associated Press reported.
Already, the financial aftershocks of Hurricane Maria have begun to ripple through the U.S. financial industry. Prices on Puerto Rico general-obligation bonds maturing in 2041 fell to 48.7 cents on the dollar as Maria raked the island, down from 52.6 cents last week. It was another sign that bondholders increasingly doubt the island’s ability to repay what it owes.
“The human pain and suffering and tragedy is really significant,” said James Spiotto, managing director at Chicago-based Chapman Strategic Advisors LLC, whose firm advises on municipal restructurings. “Certainly for the bankruptcy, this doesn’t help. Puerto Rico needs to recover economically and financially for its residents and to be able to pay the creditors.”
The National Guard and the U.S. Federal Emergency Management Agency were assisting Puerto Rico in restoring power, Governor Ricardo Rossello told reporters Thursday. He urged residents to stay off the streets and remain calm as many are still unable to communicate with family members. That includes the governor himself, who hasn’t been able to reach his parents. A key priority is reopening the port in San Juan to bring in generators, food and water, Rossello said.
“The communication systems have collapsed in general,” Rossello said. “And what I ask the people for is prudence, patience and calm.”
Legal issues should be put on hold as the island grapples with the aftermath of the storm, a judge advised the parties involved in Puerto Rico’s restructuring, according to Reuters, which didn’t name the judge.
The financial situation was dire before Maria hit. The island’s economy has been contracting for a decade, sending a stream of residents to find work on the U.S. mainland. As Puerto Rico faces catastrophic damage, it must restore the health and safety of its citizens while navigating the bankruptcy process to help it reduce a $74 billion debt load and a broke pension system.
Among the economic questions, one of the biggest is how Puerto Rico can reverse its out-migration. About 400,000 people have left the commonwealth since 2008.
“A declining population doesn’t make it easier to handle the debt that stays behind,” said Matt Dalton, chief executive officer of Rye Brook, New York-based Belle Haven Investments, which manages $6 billion of municipal bonds, including insured Puerto Rico debt. “It stays for everybody else to try to take care of.”
Another problem is the future of the government-owned Electric Power Authority, the commonwealth’s main electricity provider, which is racing to restore the island’s grid. The utility has $8.3 billion in debt but little to show for it. Even before Maria, outages were common, and the median plant age is 44 years, more than twice the industry average. It may take months to turn the power back on.
The National Guard is working to rescue people from rising waters. In the city of Comerio, the Rio de la Plata rose more than 63 feet in a matter of hours, breaking its old record by 50 feet, according to the National Weather Service. Homes are without roofs as broken trees splintered houses and covered streets.
Maria made landfall in the southeastern part of the U.S. territory Wednesday with winds reaching 155 miles (249 kilometers) per hour, knocking out electricity across the island. Maria may cause $45 billion of damage across the Caribbean, with at least $30 billion of that in Puerto Rico, said Chuck Watson, a disaster modeler at Enki Research in Savannah, Georgia.
— With assistance by Margaret Talev, Brian K Sullivan, Jonathan Levin, and Ezra Fieser