Moody's Managing Director Tim Blake talks about Puerto Rico's default, and the economic and financial issues facing the island. Bobbi Rebell reports.
Larry good people that night debt by paying only a fraction of what was due on August 1 to sign of the island's economic and cash flow problems. An open door to more people and litigation from bondholders. Joining me now with some perspective on the situation is Tim Blake he's managing director at Moody's great to have you. Thank you good morning to be here so explain exactly what is going on with players and how they got him to. The situation. Right well this is not a surprise this has been seen not a market for sometime. It's coming. Worry because economy has been in recession for ten years and it's budgets have been on balance for almost that entire time. And during that time has been building up debt just to pay for the budget. And earlier this year the governor actually made an announcement that eagle. The burden of the debt had become payable for the island. And so this isn't really surprised that they've missed payment. It could be the first of several missed payments during this fiscally here so what does this mean for the well for the for the commonwealth it means that they are currently. Husband in their cash and try and trying to direct that towards the essential services. You know health care on the island of public safety on the island and as a result of this. Liquidity shortage on payments are not being paid. So then what happens do we get litigation and what are the consequences here how does that play out right well. Puerto Rico has very large debt burden over seventy billion dollars of debt. A variety of bondholders that own different bonds. And he'll certainly be litigation from. Bottlers who aren't paid and so then the question is will how will those that litigation be consolidated somehow. Will the government vehicles. This comprehensive restructuring of its debt. Orderly or will it. Involved. Stay and here's what. It's so unique about where it goes economic situation that we hat. It that the things have gotten this bad it what is the economy like there are culturally there are mitigating circumstance before it has been recession since 2006. That started before the United States. And it still hasn't come out of recession you know well after the United States has has emerged. And so there really are two factors going on there one is Puerto Rico's. Manufacturing sector. Has two parts to the low skilled aren't high skill. The low skill part was really hit by globalization. In the late nineties early two thousands on their apparel jobs. Food processing. Electronics assembly a lot of those jobs were lost too low wage countries Malaysia Costa Rica other global centers. The high skill jobs such as pharmaceutical and more high skilled electronics. Have been suffering from. Though the loss of federal tax incentives that have supported those industries for many years and that. Phased out. And ended in 2006. How does this compare to this situation in Greece because those comparisons are being made but it it's different. Yeah I think it's quite different in that you know Greece raises a lot of geopolitical. Questions when they leave the Euro. Willie. Eurozone. To me Puerto Rico is. In a permanent union with the United States it is part of the United States it uses the US cars and none of that is going to change. So I think that's significant it's our we'll leave it there thank you so much there so thank you are saying few birdies can break and got there about it is writers.