Ukraine and Puerto Rico: struggles with conflict, corruption or dependency
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Version 0 of 1. Greece is not the only place in the world that is close to bankruptcy: Ukraine and Puerto Rico are also in serious trouble. Ukraine is now under the wing of the International Monetary Fund while Puerto Rico, a US territory that must get past the US Congress to deal with its creditors, is in freefall. Ukraine On 11 March, the IMF announced a $40bn (£26bn) assistance package to Kiev, including $17.5bn in new loans and write-offs of previous ones worth between $15bn and $20bn. The deal aimed to put a floor under a crisis precipitated by years of corruption and graft that had wrecked the economy. Moves by the EU to embrace Ukraine as one of the family triggered a civil war last year in the east of the country. A new government under Petro Poroshenko was left to deal with war, corruption, rocketing inflation, a plummeting currency, declining GDP and the loss of Crimea to pro-Russia separatists. Meanwhile, external debts reached $73bn at the start of this year. Kiev convinced the IMF to release the first $1.8bn of funds last month, but the proposed debt write-off remains in dispute. Creditors believe it would simply enrich a small group of oligarchs. Ukraine’s five wealthiest people may have lost a collective $9.75bn in the past year, but they are still the owners of the country’s main utilities and private businesses that racked up billions of dollars of debt. Angela Merkel, the German chancellor, has put the rescue of Ukraine’s 44 million people at the top of her agenda. But she has appeared powerless in the face of Russian-backed aggression. The collapse of a ceasefire between Russian separatists in the east and the Ukraine army has left hundreds of factories and countless pieces of agricultural equipment burnt out or unusable. The IMF has put a brave face on what looks like a very poor investment, saying that Kiev is regaining control of the economy, or at least the western half of it. But observers are sceptical that a country dominated by oligarchs and riven with corruption can recover without an end to the war. Puerto Rico In many ways, the Caribbean island’s problems are worse than Ukraine’s, though in humanitarian terms, not as bad as neighbouring Haiti. It has run up debts of $72bn and, according to governor Alejandro García Padilla, the government has no way to repay them. Instead, he says, the island will try to agree new deals and deferred payments with creditors. This might allow him to duck an impasse with the US Congress that has led debts to grow. A report this year, commissioned by the Government Development Bank, an agency given the task of auditing and promoting US dependent territories, and written by a former IMF staffer, said: “Structural problems, economic shocks and weak public finances have yielded a decade of stagnation, outmigration and debt. Financial markets once looked past these realities but have since cut off the commonwealth from normal market access. A crisis looms.” The problems arose 10 years ago, when tourism fell off and the government began busting its annual budget. The financial crisis made the situation worse. Lacking the necessary power to reduce its spending, the finance ministry just watched as the budget deficit ballooned. Another factor was the terms of Puerto Rico’s engagement with the US mainland, limiting its ability for trade and investment under laws drafted not long after Americans forced the Spanish off the island in 1898. The 1920 Jones Act requires Puerto Rican ports to do business only with US ships, prohibiting deals with Latin American neighbours and giving US shipping companies near-total control of prices. One answer to the government’s weakened finances was to levy higher local taxes on Puerto Ricans. This brought short-term respite but increased the cost of living and put off many businesses. Residents can pay as much as 33% of their income in local taxes, alongside sky-high tariffs on basic goods like milk and petrol, which impoverishes much of the island’s 3.6 million population. |