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washingtonpost.com
Puerto Rico says it cannot pay its debt, setting off potential crisis in the U.S.
A default on the island’s massive debts could roil the stock and municipal bond markets and raise borrowing costs for state and local governments.

The governor of Puerto Rico has decided that the island cannot pay back more than $70 billion in debt, setting up an unprecedented financial crisis that could rock the municipal bond market and lead to higher borrowing costs for governments across the United States.

Puerto Rico’s move could roil financial markets already dealing with the turmoil of the renewed debt crisis in Greece. It also raises questions about the once-staid municipal bond market, which states and cities count on to pay upfront costs for public improvements such as roads, parks and hospitals.

For many years, those bonds were considered safe investments — but those assumptions have been shifting in recent years as a small but steady string of U.S. municipalities, including Detroit, as well as Stockton and Vallejo in California, have tumbled into bankruptcy.

In addition, with as much as $73 billion in debt, the island’s debt obligation is four times that of Detroit, which became the largest U.S. city to file for bankruptcy in 2012.