#PuertoRico‘s projected structural deficit for FY ’13 is $2.15B, higher than what was originally informed to credit agencies, Moody’s, S&P.
— News is my Business™ (@biznewspr) March 14, 2013
Dark clouds are hanging over Puerto Rico. Its projected 2013 deficit follows a likely 2012 deficit and twelve preceding deficits stretching back to 2000. The economy has not been generating sufficient tax revenue to support the services that the government has been providing to citizens. The difference has been made up by borrowing in the bond market and loans from the Puerto Rico Government Development Bank.
Now the bond market gatekeepers, – credit ratings agencies – are waving the red flag. Yesterday Standard & Poor’s downgraded the Commonwealth of Puerto Rico to BBB- (one tiny step before junk status) and followed this downgrade with one of the island’s Government Development Bank to BBB-. This is ominous. The GDB is the heart of Puerto Rico’s borrowing system.
However, Puerto Rico is unique in its extensive use of public corporations to deliver public services. It directly and indirectly manages 48 public benefit corporations. This governance structure has tended to limit transparency and fiscal accountability in its public sector…