It all started with an over-borrowing spree that lasted for decades. It ended with an island of fewer than four million residents accumulating $70 billion dollars in debt. That is a debt per capita of around $10,600 – or 10 times the median for U.S. states, according to the ratings agency Standard and Poor’s.


Puerto Rico’s over-borrowing was facilitated by an eager group of U.S. investors. U.S. mutual funds were more than willing to buy Puerto Rico bonds, because the island has a special financial advantage: its bonds are triple tax-exempt, which means that bondholders do not pay federal, state and local taxes for their coupon income (i.e. interest) from the bonds.