Fausta's Blog

American and Latin American Politics, Society, and Culture

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A primer on Puerto Rico’s debt

Mark DeCambre at Market Watch explains how Puerto Rico has more than $70 billion in debt

Why is Puerto Rico in such bad economic shape?

More than a decade of economic decline and ballooning deficits, amplified by an exodus of the territory’s best and brightest, including doctors, to the U.S. has dealt a heavy blow to the Puerto Rican economy. It has been in a recession, defined as at least two consecutive periods of declining growth, since 2006.

  • The Commonwealth had an unemployment rate of 12% before the hurricanes, compared with an unemployment of 4.4% for the U.S., as of August.
  • 43.5% of its residents live below the poverty line, according to U.S. Census Bureau data, more than double that of Louisiana and Mississippi.
  • Its population is 3.4 million as of July 1, 2016, representing a decline of more than 8% since 2010.
  • [emphasis added] The island’s debt load represents $12,000 per capita, with its debt representing more than three-quarters of its annual gross national product, which would make it one of the most indebted countries in the world.
  • As a U.S. territory, the island uses the U.S. dollar, That means it can’t devalue its currency in a bid to improve competitiveness.

The article was published twelve days ago.

As if things weren’t bad enough, Howard Dean wants to put the Clinton Foundation in charge of Puerto Rico relief. That would make it official for the Clinton political machine, but, on the other hand, Howard ignores the Clinton shenanigans in Haiti. (Related: How the Clinton Foundation Got Rich off Poor Haitians)

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Brazil tames inflation

Great news for the largest country in Latin America,
Brazil’s minister says inflation to end 2017 below 3 percent.

Americas Quarterly has a rundown of Pres. Michel Temer’s reform agenda on energy, infrastructure, environment and mining, foreign trade, and project financing. Most aim to reduce the role of government in the economy. Some aim to privatize government-owned companies. Regarding pensions,

Brazil’s severe crisis has been blamed on its ballooning public debt, and pension is the one item where the government believes it can make substantial savings.
. . .
The government wants to create a minimum retirement age of 65 for men and 62 for women and make the system more equal in its treatment of public and private sector workers. Unions have held strikes and protests claiming the government is simply making workers pay for the country’s mismanaged finances.

Coming up:
Brazil Lets In Big Oil Firms After Keeping Them Out for a Decade. The country looks to expand its crude potential and revive its economy with an auction this week

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Brazil runs out of money to issue passports

Last year the Rio Olympics were 51% over budget, to the tune of $1.6 billion, the month before they opened. The 2014 World Cup $3 billion stadiums were becoming white elephants a year later.

Now Brazilian authorities have suspended the issuing of new passports because of a budget crisis:

The government said emergency funds for passports would be debated this week.

In a statement late on Tuesday, the federal police said the decision to stop issuing new passports “stems from a dearth of funds earmarked to the activities of migratory control and the issuance of travel documents”.

There’s a lot of finger-pointing, of course, and a long history corruption, and trying to look like a country with strong infrastructure, and whatever, but it all comes down to one thing: overspending.

Cross-posted at WoW! Magazine.

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Mexico: Unemployment at a 9-yr low

Good news for Mexico:

Unemployment in Mexico fell to its lowest level in nine years in October amid strong private-sector job growth that has supported consumption and helped keep the economy expanding.
. . .
The jobs numbers and an apparent stabilization of the balance of payments suggest the economy may not be performing as far below capacity as generally perceived, although an expected economic slowdown and uncertainty following the election of U.S. President-elect Donald Trump could begin to undermine a so-far resilient labor market, he added.

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Mexico: The Trump/peso index, part dos

I posted on Monday on the Trump/peso index, since a Mexican currency analyst found that the peso declines as Trump’s odds for POTUS rise. Yesterday the WSJ picked up the story:
Mexican Peso Recovers After Falling on Clinton News. Higher oil prices and less hawkish outlook for U.S. interest rates helped peso recover lost ground

The news of Mrs. Clinton’s health and comments from several U.S. Federal Reserve officials ahead of next week’s policy meeting contributed to the peso’s roller-coaster ride Monday.

Higher U.S. interest rates would make dollar investments relative more attractive, putting Fed moves among principal risks for the Mexican peso.

Silvio Canto posits,

Is the Mexican peso a poll about the U.S. election?  I don’t think so. It is a statement on concerns about the Mexican economy, such as low oil prices. It is also about exports and having a peso that helps Mexican exporters. That was the consensus of an economic summary that I read a few months ago.

Trump causing a weakening of the Mexico peso? I don’t think so and pray that it is not so. Mexico has been floating its peso since the late 1990s and it’s been good for both sides. Again, I saw a Mexican peso devaluation first hand and it was not fun, even if I went out that weekend and bought some nice business suits suddenly cheaper in dollars!

If Trump wins, it’ll be interesting to see if he’ll push for a renegotiation of the North American Free Trade Agreement, a point Peña Nieto agreed on.

Post re-edited to add missing HTML

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Ecuador: Correa was not pleased

Prof. Steve Hanke, who masterminded Ecuador’s dollarization several years ago before Rafael Correa came to power, recently visited the country. During his stay, Hanke criticized the electronic currency Correa is imposing on the country:
Ecuador’s Dollarization Architect Doubts Correa’s Pledge

With the country facing a record budget shortfall, a new currency may undermine confidence in the monetary system, said Steve Hanke, a professor of applied economics at Johns Hopkins University, who advised Ecuador on adopting the dollar in the late 1990s and early 2000s. His concerns were echoed by Ruth Arregui, a former general manager at the central bank, and the University of Georgia’s Myriam Quispe-Agnoli, who wrote about dollarization as an economist at the Federal Reserve Bank of Atlanta.

Correa was not amused and took to Twitter:

“Young people: avoid mediocrity like the plague. They bring us Steve Hanke to insult our intelligence . . .”

“. . . the “gringo Cavallo” (with apologies to Cavallo). His CV: advisor to Abdalá Bucaram, Carlos Menen [sic] and a number of former Soviet republics that . . .”

“. . . brutally embraced neoliberalism. His “pearls of wisdom”: “inflation would have been worse if it weren’t for dollarization.” That is, Colombia . . . .”

“. . . devalues when it feels like it.
It’s really embarrassing.
But this is just the beginning. Let’s strengthen the stomach.
To victory always!”

About that last tweet, I can’t say that I understand what, if anything, Colombia has to do with Ecuador’s new electronic currency, what Correa is embarrassed about, or what is “just the beginning.”
“A fortalecer el estómago” (Let’s strengthen the stomach) may (or may not) be the equivalent of “gird one’s loins,” but again, what about?

But I do know that ¡Hasta la victoria siempre! is the motto of the Cuban communists, and of Che Guevara.

Related:
Steve H. Hanke: ‘La dolarización funciona en Ecuador, pero el dinero electrónico no’

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