Tensions To Heighten As More Austerity Measures Are Implemented


BMI View: We see rising scope for social and political tensions to increase in Puerto Rico in the near term. Indeed , the rising prospect of a technical default by the commonwealth will pressure Governor Alejandro García Padilla to continue implementing unpopular austerity measures. The economy remains in a recession and a decline in fiscal support will generate significant discontent among th e population and could lead to higher crime rates.

We are downgrading our Short-Term Political Risk Rating for Puerto Rico to 61.5 from 64.0, which puts the commonwealth below the 66.1 average score for the Caribbean. The main dynamic underpinning our rating downgrade is our expectation for Governor Alejandro García Padilla to continue implementing highly unpopular austerity measures to alleviate a deteriorating debt profile. Indeed, weak fiscal revenue growth as the economy remains in a recession, combined with recent credit rating downgrades of the commonwealth's municipal bonds to 'junk' status by major ratings agencies, leads us to believe that there is a high likelihood that Puerto Rico will have to restructure its debt within the next 12 months ( see 'Negative Economic Outlook As Risk Of D ebt Restructuring Remains High', January 30). In an attempt to avoid a technical default, we believe García Padilla will pursue additional austerity policies in the coming months, which will continue to generate social and political discontent. Furthermore, given the already delicate condition of the economy, which has contracted in six out of the last seven years and has double-digit unemployment, we also believe crime will become an increasing concern among residents.

Credit Downgrade Increases Pressure For Additional Austerity Policies

Ratings Remaining Below Regional Average
Short-Term Political Risk Ratings And Sub-Components, out of 100

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This article is tagged to:
Sector: Country Risk
Geography: Puerto Rico

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