Puerto Rico doing the Illinois cliff dive

Reuters: 
Puerto Rico faces a moment of truth on Tuesday, as the island owes a $355 million payment - a possible default which could trigger lawsuits, further spook investors and undermine the island's efforts to climb out of $72 billion in debt.

The payment on bonds issued by the U.S. commonwealth's financing arm, the Government Development Bank (GDB), are crucial as Puerto Rico tries to stretch its liquidity into 2016 to give itself more time to restructure debt. A default is seen as possible but not definite.

With 45 percent of its 3.5 million population in poverty, Puerto Rico is a meteorological paradise mired in economic purgatory. Years of over-spending and the expiration of corporate tax incentives stuck it with debt that gets harder to pay as residents increasingly emigrate to the U.S.

Governor Alejandro Garcia Padilla wants to overhaul spending and restructure debt, but bondholders are resisting cuts to repayments, and restructuring discussions look to take months.

Of the payment owed on Tuesday, $273 million is protected by Puerto Rico's constitution - so-called general obligation, or GO, debt - so defaulting would likely trigger lawsuits.