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An American territory with close to four million inhabitants has suspended all payments. Parts of public services have been shelved; schools have been closed, and close to 100,000 people have stopped working in the last week. Yet the situation barely provokes any response in the United States: no official reaction, very limited media coverage. The territory in question is not an American state, but an island with a weird status. Puerto Rico is part of the United States, but has its own flag, its constitution, and its own team at the Olympic Games.
Moody's Investors Service cut the rating of Puerto Rico's general obligation bonds to "Baa3," the agency's lowest investment grade above junk status, affecting about $25 billion of government debt, the New York-based agency said.
Puerto Rico is operating off its 2004 budget because the governor and the legislature failed to agree on spending plans for 2005 and 2006.
"This action reflects the commonwealth's strained financial condition, and ongoing political conflict and lack of agreement . . . to end the government's multiyear trend of financial deterioration," Moody's said.
The statement said Moody's was keeping Puerto Rico on a watch list for possible further downgrades.
MORE than 30,000 government employees - about 14 per cent of the public work force - could lose their jobs and new taxes will be introduced as Puerto Rico attempts to shore up its ailing economy, the governor of the US island territory announced on Wednesday.
The government is Puerto Rico's main employer, with 218,000 people, or 21 percent of the work force on the island of 3.9 million inhabitants. Economic analysts have been advising Puerto Rico, which currently has a $3.2 billion budget deficit, to slash its sprawling public payroll for years.
'The government is too big and spends too much,' Fortuno said. 'Simply, the government has to be minimized.'
Neither workers nor the government are thrilled with the public pension system in Puerto Rico. As of 2005, the Caribbean island’s government pension, with 278,000 participants, had assets that totaled just 19 percent of its long-term liabilities. That made it less funded than any state retirement fund in the U.S., public records show.
Puerto Rico’s pension system is a model for common mistakes made by public funds across the U.S.
Puerto Rico, a U.S. commonwealth with a population of 4 million, has underfunded its main public pension fund since 1951 to save cash.
The island, whose capital building in Old San Juan is as close to the turquoise ocean waves as are the tourists taking photos on the edge of the beach, is far from being a financial paradise.
The legislature has repeatedly ignored annual suggested contributions calculated by its own actuaries, according to the Employees Retirement System’s records.
Puerto Rico’s legislature raised pension benefits without funding the increased expense 30 years ago. Edmund Garza, the retirement system’s administrator from 1992 to 1996, says pensions were boosted from 45 percent of average salary to 75 percent after 30 years of employee service.
“They didn’t prepare a detailed actuarial analysis to see the financial impact of this decision, but definitely it was huge,” Garza, 47, says.
The government skipped nearly $2 billion in contributions urged by its actuaries from 2000 to ‘05, according to fund records. The pension system continued a course toward insolvency as it paid out more in benefits than it took in.
By 2005, the Employees Retirement System had $12.3 billion of pension obligations with just $2.3 billion of assets. Puerto Rico itself has a BBB- credit rating, one notch above junk, from Standard & Poor’s.
“We are very near bankruptcy,” says economist Jose Villamil, speaking of the commonwealth. He is founder of Estudios Tecnicos Inc., a San Juan-based economics consulting firm. “The budget is out of control; the treasury is in sad shape.”
‘Continue to Deteriorate’
In 2007, the actuary for the Puerto Rico fund, Hector Gaitan of Buck Consultants LLC, recommended that the legislature make an annual contribution of $564 million.
“The financial status of the System will continue to deteriorate,” Gaitan said in a Feb. 12, 2007, letter to the pension board that urged a boost in commonwealth contributions.
The legislature ignored Gaitan’s warning. It chose to put $398 million into the pension fund. Just months after Gaitan suggested bigger government contributions to the retirement system, the pension board dismissed Gaitan and his firm.
Originally posted by Cisko
I live here... It sucks right now... and yes VERY dangerous... the other day one of my highschool friends got killed... I'm moving soon.