Puerto Rico on the verge of default

"We don't have the money," Gubernatorial Chief of Staff Victor Suarez told reporters on Saturday, announcing the missed payment, worth 52.7 million euros. He said the government still hoped to reach an agreement with creditors on renegotiating its debts.

It was feared for months that the Puerto Rican government would not be able to repay $72 billion in public debt.

Puerto Rico, a US territory, has accrued massive amounts of debt in the past decade as investors' fears became more acute that the government was running out of money. Its bonds were once popular with American mutual funds because they were tax-free. But, once the economy worsened, hedge funds began scooping them up as the country's credit rating dropped.

Unlike municipalities such as Detroit, in the US state of Michigan, Puerto Rico cannot declare bankruptcy because of its status as a terrtitory. This would make managing a default much more difficult.

Puerto Rican officials say the failure to make Saturday's payment does not constitute a default because they are not legally bound to repay bondholders.

Some economists disagree. "It is a default no matter how they try to disguise it," Sergio Marxauch, policy director at the Center for the New Economy in Puerto Rico, told the Associate Press news agency.

Experts believe that the bondholders could file lawsuits as early as next week.

"Obviously, we have been anticipating lawsuits," Puerto Rican Justice Secretary Cesar Miranda said.

If Puerto Rico defaults, it would become the first US territory to do so.

shs/mkg (AP, Reuters)