World Economy

Puerto Rico gets downgrade—is it America's Greece?

Standard & Poor's downgraded Puerto Rico last week to CCC+, giving the perennially struggling U.S. territory the same credit rating as Greece.

A roofless colonial building is overtaken by vegetation in Old San Juan, Puerto Rico.
Alfredo Sosa | The Christian Science Monitor | Getty Images

Puerto Rico has been called "Greece in the Caribbean" or "America's Greece" in light of its poor credit ratings, high debt levels and flagging economy with high unemployment.

But the situation is much less dire for the American territory than it is for Greece, in part because Puerto Rico's debt levels are a much lower percentage of its GDP, compared with Europe's "sick man." The CIA World Factbook places Puerto Rico's at 93.6 percent and Greece's at 174.5 percent.

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That difference gives the island's government more latitude for handling the situation, according Vicente Feliciano, president of San Juan-based Advantage Business Consulting.

"Just the magnitude of the debt is very different," he said. "Still, some adjustments need to be made, both on the fiscal front and supply side reforms."

Unlike Greece's government, which has struggled to implement consistent reforms, the Puerto Rican government has been tackling economic change for the last nine years, Feliciano said. Those adjustments included a new sales tax, public sector job cuts and more.

As Greece struggles to negotiate with its lenders in Europe, Puerto Rico's political leaders have maintained their commitment to meeting all government general obligation debts, but not all debt held by public firms (such as the Puerto Rico Electric Power Authority).

Holders of Puerto Rican debt, much of which belongs to hedge funds, are watching for results of a legislative battle over the territory's 2016 budget. In its downgrade last week, S&P wrote that an extended disagreement about key budget provisions could "exacerbate liquidity and fiscal pressure."