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Puerto Rico was the poorest and most struggling part of America even before Hurricane Maria hit in September 2017. Its bonds had been in default for over a year, and were trading at around 60 cents on the dollar before the hurricane knocked them down to a low of less than 23 cents in December 2017.

Expand chart
Data: FactSet; Chart: Chris Canipe/Axios

Today, those bonds are back to their pre-hurricane levels, and Puerto Rican debt has proven to be 2018's top bond investment.

Very few people are happy about this development, beyond the distressed-debt specialists who own the bonds.

  • The back-of-the-envelope math is simple: If Puerto Rico has $70 billion in debt, and it gets paid off at (say) 71 cents on the dollar, that's $50 billion being sent off the island at precisely the moment that the Puerto Rican economy needs all the financial help it can get.
  • That $50 billion outflow will do nothing to help, and quite a lot to harm, the island's recovery from Hurricane Maria.
  • Puerto Rico will end up receiving about $82 billion of disaster relief money — much more than most people expected it would get, this time last year.
  • As ever, official disaster-relief sums dwarf charitable inflows: The Red Cross raised $72 million for Puerto Rico, including the value of donated goods. That's less than 0.1% of what's going to end up being spent by the federal government.
  • Trump has accused “inept politicians” in Puerto Rico of using disaster relief money to repay their debts. And though all disaster relief money is going to be used on disaster relief, it's certainly true that without the $82 billion coming in, there's no way that Puerto Rico could afford to spend $50 billion paying back its debts.

Puerto Rico needs that $50 billion, even after the disaster relief inflows. Its pension liabilities alone are more than $50 billion.

  • More than 40% of the population currently lives below the poverty line, including about 60% of children on the island.
  • Since the financial crisis, Puerto Rican GNP has shrunk by 20%, labor participation has hit a record low of 38%, and the island’s population has fallen by 10%.
  • Student enrollment has declined by more than 50% since its peak in 1980, and by about 33% in the past decade.

Puerto Rico has mind-boggling amounts of debt, given its size and the fact that its population is going to continue to shrink indefinitely.

  • The island's debt load is 55% of GDP, compared to a US state average of 2.6%. It’s also equivalent to 102% of state personal income, vs an average for U.S. states of just 2.9%.

The bottom line: Bondholders will always push to receive as much as they can possibly get. But Trump and the island's elected politicians are right to worry about money flowing out, just when Puerto Rico needs it most.

Go deeper

Updated 2 hours ago - Politics & Policy

Omicron dashboard

Illustration: Brendan Lynch/Axios

  1. Health: Pfizer and Moderna boosters overwhelmingly prevent Omicron hospitalizations, CDC finds — Omicron pushes COVID deaths toward 2,000 per day — The pandemic-proof health care giant.
  2. Vaccines: The case for Operation Warp Speed 2.0 — Starbucks drops worker vaccine or test requirement after SCOTUS ruling — Kids' COVID vaccination rates are particularly low in rural America.
  3. Politics: Biden concedes U.S. should have done more testing — Arizona says it "will not be intimidated" by Biden on anti-mask school policies — Federal judge blocks Biden's vaccine mandate for federal workers.
  4. World: American Airlines flight to London forced to turn around over mask dispute — WHO: COVID health emergency could end this year — Greece imposes vaccine mandate for people 60 and older — Austria approves COVID vaccine mandate for adults.
  5. Variant tracker

Arizona governor sues Biden administration over COVID funds tied to mandates

A teacher prepares a hallway barrier to help students maintain social distancing at John B. Wright Elementary School in Tucson, Arizona, on Aug. 14, 2020. Photo: Cheney Orr/Bloomberg via Getty Images

Arizona Gov. Doug Ducey (R) filed a lawsuit Friday against the Biden administration for ordering the state to stop allocating federal COVID relief funds to schools that don't comply with public health recommendations such as masking, the Arizona Republic reports.

Why it matters: The Treasury Department said last week that the state would have to pay back the money if Ducey does not redesignate the $173 million programs to ensure they don't "undermine efforts to stop the spread of COVID-19."

Federal judge blocks Biden's vaccine mandate for federal workers

President Biden speaking from Eisenhower Executive Office Building on Jan. 21. Photo: Yuri Gripas/Abaca/Bloomberg via Getty Images

A federal judge in Texas blocked the Biden administration from enforcing its coronavirus vaccine mandate for federal workers on Friday, citing the outcome of last week's Supreme Court ruling that nullified the administration's vaccine-or-test requirement for large employers.

Why it matters: It's a blow to President Biden's efforts to increase the U.S.' vaccination rates, though much of the federal workforce has already been vaccinated against the virus.