Recent reports having been calling Puerto Rico the “Greece of the Caribbean” – and not for its mild weather. It’s because Puerto Rico is at risk of growing broke. Unemployment is almost 15 percent; the poverty rate is at almost 45 percent.

The government’s credit rating was downgraded in late 2012.

Everyone seems worried about the economy.

Eduardo Cintrón is a security guard at a shopping mall called Plaza Las Americas. He says the prosperity on display here is a mirage, “All the people that are here, they only spend with the card, the credit card, more debt and more debt.”

Cintrón might as well be talking about the island itself. Puerto Rico’s public debt is $70 billion, almost four times that of the bankrupt city of Detroit. It’s a similar debt load to the state of New York, which has more than twice times the population.

And now, there’s worry among bondholders that Puerto Rico could default

How Exactly Did This Happen?

Economist Vicente Feliciano says the Puerto Rican economy grew at a healthy clip for decades, thanks to huge federal tax breaks that lured corporations to set up factories there.

“It was growing at Asian levels,” he says.

Puerto Rico achieved one of the highest living standards in all of Latin America. But then in the 1990s, the federal government eliminated those tax incentives. It was like a death sentence for the Puerto Rican economy, “there was an economic model that came to an end,” says Feliciano.

By the time the tax breaks were fully phased out in 2005, much of the island’s industry had evaporated.

The government began to borrow a lot of money to make up for the lost corporate tax revenue.

“Your salary is cut so you start taking on money from your credit cards and there comes a point that you max out,” says Feliciano, “You have to cut back on your living standards, and we have been going through that process

Puerto Rico Has Maxed Out

Essentially, Puerto Rico has maxed out. Rating agencies downgraded the island’s bond to near-junk status in late 2012, making it difficult to borrow. So far, there’s no federal bailout on the table. The government has promised it will not default.

Instead, it’s taking tough measures in order to raise cash.

In other words, Puerto Ricans are really hurting.

Kelvis Polo is a shop owner in the working-class shopping district in San Juan. His life began 17 years ago as a street vendor, and slowly worked his way up to become the proud owner of several apparel stores.

He’s had to close two out of his three stores. He has had to lay off 15 employees.

He says lots of factors are conspiring to bury him. For example, electricity is extremely expensive in Puerto Rico – higher than in any U.S. state except Hawaii.

On top of that, the government has imposed a flurry of new taxes: sales taxes, gas taxes, corporate taxes. Water rates went up 60% this year.

The cost of living is high, and the wages are staying flat. Polo’s former customers have no money to spend.

“We small businessmen are the backbone of any country’s economy,” he says, “but we don’t have the strength to keep going.”

Polo plans to close his last store in January and go back to selling in the street, where he’ll have no rent or electric bill to pay.

The Price Of Austerity

The government’s new taxes will raise an estimated 1.4 billion dollars. That’s a step towards meeting the goal of balancing the budget by 2016.

But citizens feel angry. There is a sense that the government is just digging in the knife.

David Chafey, a top government financial officer, says the administration didn’t have much choice. It was either raise taxes or cut

spending drastically.

“The governor felt that cutting expenses to that amount would have been quite painful to a lot of people, and maybe for the past 8 or 10 years, different administrations have been able to postpone on some of those decisions,”  says Chafey, “but at this stage, given everything we were facing, these were things that we had to do.”

But those things have come with a price.

It Will Get Worse Before It Gets Better

Mario Alberghini is a 30 year-old entrepreneur who wants to stay in Puerto Rico. Given the current outlook, he says, it’s not easy getting a business off the ground.

“When you see young people leaving the island, they do it very calmly, and that is completely understandable,” says Alberghini, “Because on a certain level, you sort of don’t know what’s going to happen.”

Economists speculate that a recovery will come…eventually.

Salaries will probably be lower than on the mainland. And that could make Puerto Rico attractive to businesses again.

But for now, things will likely get worse before they get better.

 Marlon Bishop is a radio producer, writer, and reporter based in New York. His work is focused on music, Latin America, New York City and the arts, and has appeared in several public radio outlets such as WNYC News,Studio 360, The World and NPR News. He is an Associate Producer at Afropop Worldwide and a staff writer forMTV Iggy.