Comments on: The fragile tax structure in Puerto Rico Bridges, budgets, bonds Mon, 24 Nov 2014 00:29:08 +0000 hourly 1 By: Cate_Long Wed, 23 Apr 2014 20:12:23 +0000 From: rto-rico-bond-purgatory-and-tax-haven-68 4

Much has been made recently about all the restructuring experts who have been hired by the Commonwealth, among them New York-based Cleary Gottlieb. Lee Buchheit, one of Cleary’s principals, co-authored an interesting paper last October, titled: “Revisiting Sovereign Bankruptcy,” which contained the following quote on sovereign credit defaults:

“There is evidence that policymakers are often reluctant to restructure their debts and sub-optimally postpone unavoidable defaults (e.g., Borensztein and Panizza 2009; Levy Yeyati and Panizza 2010; IMF 2013). Delayed defaults can lead to the destruction of value because a prolonged pre-default crisis may reduce a country’s capacity and willing willingness to pay. Its capacity to pay is reduced because procrastination prolongs the climate of uncertainty, high interest rates and restrictive fiscal policies that are ineffective in avoiding default but amplify output contractions. Delayed defaults reduce its willingness to pay because electors that have suffered long periods of economic austerity are less likely to support a creditor-friendly debt restructuring (our emphasis).” Now, doesn’t this sound familiar to you?