Midtown Blogger/Manhattan Valley Follies: Die Welt- Puerto Rico

Monday, August 3, 2015

Die Welt- Puerto Rico

As German Finance Minister Wolfgang Schäuble in the debt dispute with Greece visibly annoyed was from the ongoing advice of his American colleagues Jack Lew, Schäuble responded with his own kind. He had offered his friend Lew, "that we could include Puerto Rico in the euro zone, if the United States would be willing to take Greece to the dollar Union ", Schäuble quipped early July.

The timing for the Schäuble-Pointe could hardly have been better. Only a month later, Puerto Rico is bankrupt. The government in San Juan did not make it on Monday to repay a bond due plus interest in the amount of $ 58 million on time.Instead, the country was able to raise only $ 628,000 for the creditors.

Such late payments to private lenders is the national bankruptcy. And indeed placed the rating agency Moody's takes the default determine how the bankruptcy in exchange lingo. The experts evaluate the bankruptcy at the state-owned Puerto Rico Finance Corporation as the beginning. It should be assumed that further defaults followed.

Already on August 15, nearly 700 million dollars for repayment and debt service of a further bond are again due and it then continues in monthly basis. Even rival Standard & Poor's downgraded back three ratings for the country or countries finance companies to default. That's the lowest Classified in the rating scale.

Puerto Rico can not file for bankruptcy

Of the debt problems of Puerto Rico few may have heard, everywhere in connection with the Schäuble-mockery, but it has quite insolvency in itself. For it is by no means the rich port, as Puerto Rico is literally translated. Overall, the Caribbean island carries a debt burden of around 72 billion dollars that is now affected by the bankruptcy. This is the fourth largest bankruptcy in the history of debt. Only in Greece in 2012, Argentina in 2001 and Russia in 1998 had the creditors even larger sums in the fire. In Hellas were converted $ 138 billion three years ago.

Puerto Rico was a Spanish colony until 1898 and is like some other Caribbean islands with the United States associated. Residents of Puerto Rico have since 1917 the US citizenship and serve in the army, are in the US but not entitled to vote or tax. Because of the special status of Puerto Rico can not officially file for bankruptcy, with its 3.5 million inhabitants. A default could therefore draw on many years of negotiations in order to settle the crisis.

Economically is Puerto Rico something that Greece Caribbean. While the debt ratio is 70 percent well below that of the Aegean Sea state, which brings it to 172 percent.However, the country's economy is in a similarly precarious situation. In the two most important economic sectors, the pharmaceutical industry and the industry, the number of employees has been halved in the past decade. No wonder that more and more people turn their backs on the island nation and looking in the US or elsewhere their fortune. Over the past 17 years, the country is bled downright. Now fewer and fewer residents have to bear the ever-increasing debt burden. Since 2006, only shrunk except one year the economy.

Debt should hide problems

Part of the misery is due to the mismanagement of the government. The has only tried in the globalization to establish the country as a production base between Singapore and the USA. But for a workbench of global format wages were too high. The government then tried to cover up the problems with debt. In the past decade, the debt doubled.

For the misery, the government blames in San Juan, the structure of the country.When outside the territory of the United States must comply with strict rules such as minimum wages or social standards. Yet Puerto Rico is not a separate US state with equal rights. It can therefore only limited hope for help from Washington. And in fact it has the US government, led by Finance Minister Lew refused to pay for the debt of Puerto Rico.

Thus the land was apparently only the national bankruptcy. For the markets it is not really surprising. Credit markets were last appraised the risk of bankruptcy on more than 99 percent. Accordingly, the bonds are strong like. Write down between 35 and 70 percent below their nominal value. This also corresponds approximately to those quotas, the expected creditworthiness auditors of Moody's for debt restructuring.

A similar haircut would probably like Greece.But these declines, the German Finance Minister Schaeuble from far. His Pointe with Puerto Rico should now hold him again many experts.