What led to the critical financial emergency in the Caribbean island?
The answer to that goes back a long way. Puerto Rico became a US possession after the Spanish-American war (along with Cuba, the Philippines, Guam, and so on). As it was strategically located in the Caribbean, the US wanted it as a naval base, so it was annexed as a territory. Sugar was a lucrative crop, and mainland companies bought in - Domino, still one of the biggest American sugar companies, got its start in Puerto Rican plantations. In the 40s, Puerto Ricos economy was still agrarian, and the median income on the island was $140 a year, compared with a national median of $2702. Puerto Rican industry leaders and the state government, wanting to improve that, saw that industrialization was the answer, and hatched a plan called Operation Boostrap, which would invest in goods for export (i.e. sale off-island to the mainland market), using government money and with tax breaks. This, by the way, was the first attempt to do this. Ever. Worldwide. And it worked really well, actually, which is why every other economic plan to raise the standard of living in a poor country has been exactly this. By the 1970s, Puerto Rico was the most prosperous country in Latin America (if you treat it as a separate country for the purposes of comparison). A state-of-the-art electrical grid was installed, railways circled the island, roads were built, and so on. But the global economy started to change in the 70s. Asia started to gain capacity in cheap manufacturing, and over the next couple of decades, Puerto Rican manufacturing started to struggle. The problem turned out to be twofold - first, the investment into local manufacturing was powered by tax breaks, including tax advantages granted at the federal level, and businesses had grown to depend on those advantages even though they were intended to be an initial startup cost, not something set in stone for the ages. Second, instead of encouraging the growth of support industries, this scheme turned out mostly to attract mainland corporations who built subsidiaries here for the tax breaks and the cheap wages. Their management was imported from the mainland, and their suppliers remained on the mainland - things were simply shipped here, assembled, and shipped back, to improve the profit margin. (To be fair, over this period, the same pattern also prevailed on the mainland in the Rust Belt, as local businesses were bought out, hollowed out, and cities and towns in the Midwest crushed to squeeze a few more dollars out for the investment funds.) Unfortunately, the state government didnt really understand why the original Operation Bootstrap had worked, and thus didnt understand how to tweak it as global economic conditions changed - all they saw was that the tax breaks were important because if they were removed, the employment rate would plummet. So they borrowed money to keep the infrastructure running as well as possible, and just kept borrowing, without the economy ever getting better. Then a recession hit, and the economy cratered. And then the federal tax advantages were repealed. And there was no way to pay all of that money back, because the tax base just isnt sufficient to do it. As the municipal bonds began to fail, New York hedge funds bought them up for pennies on the dollar - then, in a scheme first pioneered by Alexander Hamilton, the hedge funds went to Congress and demanded full payment at face value for the bonds they bought at small fractions of that price. And Congress was all too happy to grant them that, installing a financial oversight board in Puerto Rico with six-figure annual salaries whose only job was to ensure that the state could pass no law that put Puerto Rico before the hedge funds. Of course, the municipal bonds that were bought for pennies on the dollar were also the pension investments for Puerto Rican teachers and government employees, so no retirement for you, missy! And then, the worst hurricane in American history hit us.