Greek debt deja vu looming in Puerto Rico

PUERTO Rico's Governor Alejandro Garcia Padilla admitted earlier this month that the Caribbean island's US$72 billion debt "is not payable". The announcement - coming at the same time that Greece's looming bankruptcy has been the focus of global media attention - led some observers to draw parallels between that financial disaster and the one facing Puerto Rico.

That analogy may be misplaced for several reasons, including the fact that Puerto Rico is not a US state but a US Commonwealth or an "incorporated territory" - a status that would probably not be affected by whether it is able or not to resolve its financial problems. In any case, unlike the relationship between Greece's crisis and the future of the European Union, no one seriously expects that Puerto Rico's economic ruin would result in the breakdown of the political and economic system that holds the United States together. And the expectation is that although a default by the Caribbean island's government may hurt holders of Puerto Rican bonds (not to mention the island's residents), it will result in a relatively small "contagion" effect.

But the financial crises facing Greece and Puerto Rico both reflect similar structural economic and political problems, including excessive borrowing, bloated welfare systems, human and capital flight, and the irresponsibility of members of the political classes.