RENEE MONTAGNE, HOST:
As we report on the debt crisis that is crippling Greece's economy, there's a similar crisis closer to home. Puerto Rico has amassed a huge amount of public debt in recent years, nearly $73 billion. Now a report obtained by NPR says that even with major economic reforms, Puerto Rico will have trouble paying off that debt. The governor of that U.S. territory says he will ask creditors for more time. NPR's Jim Zarroli has been following this and is on the line now. Good morning.
JIM ZARROLI, BYLINE: Good morning.
MONTAGNE: So this report that NPR has obtained was commissioned by the agency that manages Puerto Rico's debt. What are some of the conclusions?
ZARROLI: Well, it's really a dire report. I mean, this is a crisis looming. This was written by three current and former economists at the International Monetary Fund, and they say, quote, "the economy is in a kind of vicious circle where unsustainable public finances are feeding into uncertainty and low growth, which is making the fiscal problems worse." In other words, the economy has been shrinking for years, so tax revenue has fallen. That makes it harder to pay off debt, and that just weakens the economy even more.
MONTAGNE: And of course, as I said, Puerto Rico's a territory of the U.S. Puerto Ricans are American citizens.
ZARROLI: That's right, yes.
MONTAGNE: How did Puerto Rico get into this deep hole?
ZARROLI: It has deep structural problems. It has high labor costs, high shipping costs. Electricity is expensive. It has tried to attract businesses by cutting taxes, but that has just made the fiscal problems worse. Now, for a long time, Puerto Rico has been able to paper over this by borrowing a lot. Its bonds were very attractive to investors because Congress allowed them to be issued free of state and federal and local taxes. So the debt load grew in good times; it grew in bad times. And today, this report says it is much worse than anyone thought. The government has tried to address this by cutting costs, raising taxes, but it just hasn't been enough.
MONTAGNE: Is it likely to affect the larger U.S. economy?
ZARROLI: That remains to be seen. I mean, I think what you can say for sure is that there are investors - institutional investors and individuals - who will be affected. Like I say, a lot of people invested in Puerto Rican bonds. They're going to take a big hit now. There's going to have to be a process by which the debts are worked out in court.
MONTAGNE: And - but does this mean that Puerto Rico is now bankrupt?
ZARROLI: Well, Puerto Rico is not allowed to declare bankruptcy by law. It wanted Congress to change the law to allow it to go bankrupt, but Congress didn't want to do that, so Puerto Rico will almost certainly be in default. And as I said, all those people are going to take a hit. You know, it's - we're going to see this process where the commonwealth and its creditors try to figure out who gets what. There's a lot at stake here. You know, when Detroit went bankrupt, it had about $20 billion in debt. Well, Puerto Rico has at least $72 billion and probably more.
MONTAGNE: Wow. Well, just briefly, the governor of Puerto Rico is supposed to give a speech today about the economy. What's he likely to say?
ZARROLI: He is likely to say that time has run out, that Puerto Rico can't pay what it owes. It needs more time to make good on its debts. He gave an interview to The New York Times in which he basically said, you know, the debt is not payable. He said there's no other option. This is not politics. This is math. I mean, it's sort of a warning to the island's creditors to get ready to take a loss. He is also going to give a speech to the people of Puerto Rico...
ZARROLI: ...and the legislators today, so that will be what he says.
MONTAGNE: OK, well, thanks very much.
ZARROLI: You're welcome.
MONTAGNE: NPR's Jim Zarroli.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.