"Municipal bond mutual fund investors are panicking this weekend after the U.S. Commonwealth of Puerto Rico’s Legislature passed a new law allowing public agencies to default on their debt.
Although part of the United States, Puerto Rico in the 1990s made Spanish the official language and now about 86% of the island does not speak English in the home.
Democrat Governor Alejandro Garcia Padilla, who has difficulty speaking English, told Bloomberg News last year that Puerto Rico had a constitutional and moral obligation to not default on the island’s $73 billion of debt. But he just passed a law giving local court proceedings the power to cancel much all of the island’s bond debt.
Puerto Rico is the poster-child for multiculturalism with both Spanish and English as the official languages.
US officials pushed for many years to make English the dominant language, but in 1991 the Puerto Rican legislature issued a bill making Spanish the official language in school and government use.
The decision was reversed by a federal court in 1993, but the Democrat Party that has dominated politics for 100 years demanded that schools continue to shun English.
Today only 1 in 8 families speak English as the primary language in the home.
Puerto Rico economy is now shrinking at a 6% annual pace and only 1.2 million, or 32%, of the island’s 3.7 million of the inhabitants employed.
Among Puerto Ricans working full time, surveys reveal that 96.6% say Spanish is their first language, and 98.5% indicated that they are fluent in Spanish.
Because of its horrible economic fundamentals, the island’s high yield bonds have been a magnet for mutual fund investors, which hold at least $12 billion of the island’s debt.
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