World View: Puerto Rico Avoids Default with Partial Bond Repayment

The Associated Press
The Associated Press

This morning’s key headlines from

  • Puerto Rico avoids default with partial bond repayment
  • Central Africa Republic votes for new president and legislature

Puerto Rico avoids default with partial bond repayment

San Juan at night
San Juan at night

Puerto Rico’s Governor Alejandro Garcia Padilla announced at a press conference in San Juan on Wednesday a series of financial maneuvers to avoid default in January, when more than $1 billion in bond payments are due.

Over $100 million in cash reserves that had been set aside to pay other debts will be part of a $357 million payment of interest due on Puerto Rico’s general obligation debt, thus avoiding default.

However, two payments, also due on January 1, will not be paid. One is a $35.9 million payment on debt issued by the Puerto Rico Infrastructure Financing Authority, and the other is a $1.4 million payment on Public Finance Corp. bonds.

According to a spokesman for the US Treasury Dept.:

Today’s announcement that Puerto Rico will miss additional payments demonstrates the gravity of the Commonwealth’s fiscal crisis and the need for Congress to act now. Puerto Rico is at a dead end, shifting funds from one creditor to pay another and diverting money from already-depleted pension funds to pay both current bills and debt service.

The Treasury Department, the Obama administration, and Puerto Rican officials are pressuring Congress to to pass legislation enabling the commonwealth to seek Chapter 9 protection from creditors or create a financial control board that would have enough authority to coerce recalcitrant bondholders to join a restructuring plan. The word “recalcitrant,” which is used in news reports describing this proposed legislation, indicates why bondholders strongly oppose this plan. Republicans also oppose the plan, fearing that it would force the bondholders to bail out Puerto Rico, and would allow the commonwealth to continue its practice of unlimited debt and spending that gave rise to the current situation in the first place.

As we wrote two weeks ago ( “20-Dec-15 World View — Puerto Rico negotiates restructuring after Congress fails to allow Chapter 9 bankruptcy”), a Puerto Rican default would have widespread negative impact on ordinary American investors, because of the massive size of the investments in 401k’s and ordinary investment funds.

House Speaker Paul Ryan has refused to push the bankruptcy legislation, but has promised to create a legislative package by the end of March to deal with Puerto Rico’s financial problems. If this is accomplished, then it will be done just in time to avoid a full default in May, which otherwise is all but certain. Bloomberg and Washington Post

Central African Republic votes for new president and legislature

International officials are hoping and praying that Wednesday’s presidential and legislative elections in Central African Republic (CAR) will turn the page for the country, end the violence, and bring happiness to all.

In other words, the hope is that Christians whose villages were burned to the ground by Muslim militias, and Muslims whose families were raped, murdered and dismembered by Christian militias, will all put aside any desire for revenge, and all that will be required is that the new government take office.

Many people are particularly hopeful because there were long lines to vote in the capital city Bangui, but no violence. Interim President Catherine Samba-Panza was very pleased:

Many thought this day, this vote would not be possible for security and organizational reasons. But, you see, we all are voting in dignity and peace and I am proud.

Aisha Laraba Abdullahi, the African Union’s commissioner for political affairs added, “With the election held today, we are confident that the transition in the Central African Republic is coming to an end, and that this would usher in peace and stability and prosperity to the Central African Republic.”

However, as we wrote three weeks ago, when a new constitution was adopted, the elections may actually worsen Muslim-Christian violence. Either the Muslim side or the Christian side is going to come out ahead, and the other side may not tolerate it.

There will be plenty of excuses for either side to pursue renewed violence. There were a number of irregularities in Wednesday’s elections. There were some errors in printing the ballots, and ballots didn’t arrive in time in some parts of the country.

Indeed, CAR is a huge country, and the capital city Bangui is only a tiny dot on the map of the country. All the news reports so far about a violence-free election came from Bangui, where thousands of African Union and United Nations peacekeepers have been brought in to make sure nothing happens. By contrast, there are no peacekeepers in vast regions of the country, some warlords (both Muslim and Christian) have declared that they won’t abide by the election, no matter what the result. Out of a population of one million, there are about one million who have been driven from their homes, and many of those will have had no chance to vote. There have been reports of continuing violence between Muslims and Christians in some parts of the country.

The vote count is expected to take several days, and the presidential vote is expected to go to a run-off on January 31.

As I’ve written in detail several times in the past ( “2-Oct-15 World View — Violence resurges in Central African Republic crisis war”), CAR is deep into a generation Crisis era and in the middle of a generational crisis war. A new constitution and a new election are not going to stop the huge generational forces that are pushing the Muslims and Christians into this war of mutual extermination. The war will not end until it’s run its course, and apparently still has a long way to go. AFP and VOA and Reuters

KEYS: Generational Dynamics, Puerto Rico, Alejandro Garcia Padilla, Infrastructure Financing Authority, Public Finance Corp., Central Africa Republic, Catherine Samba-Panza, African Union, Aisha Laraba Abdullahi
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