Puerto Rico governor declares emergency at Government Development Bank

Gov. Alejandro García Padilla ­announced Saturday that he has declared a state of emergency at the Government Development Bank, a moved aimed at ensuring that Puerto Ricans continue to receive essential government services.

The governor said he issued an executive order Friday to halt the erosion of the bank’s dwindling liquidity by allowing withdrawals only to fund necessary costs for health, public safety and education services. The order does not call for a moratorium on the bank’s principal or interest payments. García said the government bank, known as GDB, is in talks with creditors regarding a payment of nearly $423 million, due in May.

The order is the first taken under the Puerto Rico Emergency Moratorium and Financial Rehabilitation Act enacted this past week, which gives the governor emergency powers to deal with the fiscal crisis, including the ability to declare a moratorium on all bond payments.

“The GDB’s financial condition has continued to deteriorate and, absent the measures ordered in this executive order, there is an imminent risk of a drastic decrease in GDB’s liquidity in the immediate term. This, in turn, would jeopardize the provision of essential services by the commonwealth,” the order states.

It notes that the government and creditors are in discussions to address the government’s immediate liquidity challenges and to ensure that its debt service is sustainable over the long-term.

Because restructuring could take time, the order says, “the commonwealth has a duty to take any and all actions reasonable and necessary to protect the health, safety and welfare of its residents by ensuring the continuation of essential services.”

Without debt restructuring, Puerto Rico will be forced to default as it faces nearly $2.5 billion in bond payments from May through July, government officials have said.

The U.S. House Natural Resources Committee this week will consider legislation that will provide bankruptcy powers to Puerto Rico while subjecting it to the authority of a federal oversight board. The U.S. Supreme Court is also reviewing federal court rulings that said a local bankruptcy law enacted by the commonwealth is unconstitutional.

García announced in June that Puerto Rico’s nearly $70 billion debt was not payable. Since then, a deal has been struck with creditors to restructure much of the Puerto Rico Electric Power Authority’s nearly $9 billion debt.

On Thursday, the utility filed a petition before the island’s energy regulator for a new securitization charge, which would pay for the restructured debt following a planned bond exchange. Officials estimate that the charge, which will be revised quarterly, will initially be $11.98 a month for residential customers and .03 cents per kilowatt hour for nonresidential customers, according to the filing.

Puerto Rico governor declares emergency at Government Development Bank

Which is Africa's new top investment destination? | World Economic Forum

The difficult patch that Nigeria, the largest economy in Africa, is going through does not seem to be abating.

According to a new Nielsen report (pdf) which provides a ranking of business prospects for leading markets in Sub Saharan Africa, Nigeria is no longer the top investor destination on the continent. In its place, Cote d’Ivoire has risen to the top of the rankings.

Buoyed by a fast growing economy and a lengthy period of political stability highlighted by successful elections last year, Cote d’Ivoire is now regarded as a prime destination for investment in Africa. Although, that status could now be affected following a recent attack by Al Qaeda in the Islamic Mahgreb (AQIM).

Source: Nielsen

Having been ranked as the top investor destination at the start of 2015, Nigeria has now fallen to fourth on the rankings. The ominous slide fits the narrative of Nigeria’s slowing economic growth amid a global slump in commodity prices. Oil in particular, Nigeria’s main export and revenue source, has been badly hit.

According to the research firm, Nigeria’s slide was “driven primarily by deteriorating macro-economic indicators”. It also adds that “consumer indicators and overall confidence levels” have also dipped. A recent Capital Importation report (pdf) by the Nigeria Bureau of Statistics confirms this. Last year, Nigeria’s recorded total inflow of capital into the economy stood at $9.6 billion —a 53% drop from the previous year and the lowest recorded total since 2011.

While incidental economic factors have largely contributed to Nigeria’s floundering economy, the country’s government has also come in for criticism for not managing the crisis effectively. President Buhari’s handling of the economy has been questioned with the Central Bank of Nigeria instituting strict monetary controls in response to commodity prices and a currency slide. These controls, which inevitably strained citizens and hardly had the desired effect, have been described as unorthodox.

As Buhari closes in on his first year in office, many Nigerians will be hoping that in his second year, the focus will be on triggering an economic rebound in Africa’s biggest economy following slowed growth.

Image: REUTERS/Marko Djurica

A woman walks by the beach of Kenya's coastal city of Mombasa.

Yomi Kazeem

Which is Africa's new top investment destination? | World Economic Forum

Puerto Rico might CUT its minimum wage

Dozens of American cities and states believe the U.S. federal minimum wage of $7.25 is way too low. Not Puerto Rico. The island might actually slash wages.

Congress just drafted a bill to help Puerto Rico climb out of its severe economic crisis and $70 billion debt debacle. One of the many band-aids House Republicans is showing Puerto Rico is a minimum wage below the federal requirement of $7.25 an hour.

It would immediately make Puerto Ricans the cheapest labor in the country, although only workers under 25 would qualify for the lower wages.

The goal is to get more Puerto Ricans employed. One in every 10 people on the island wants a job but can't find one. That's far worse than just about anywhere else in the United States.

Lowering the wage could make Puerto Rico more competitive "among neighboring islands where lower-wage labor is readily available," the House Committee on Natural Resources explained in a press release accompanying the bill.

There's some justification for paying less on the island. Across America, the typical household earns $53,657 a year. In Puerto Rico, the typical family earns a mere $22,477 a year, according to Census. The salary people need to live a middle class life on the island is far lower than in other parts of the country.

The House Republican plan to fix Puerto Rico

Republican House Speaker Paul Ryan praised the bill. Ryan vowed that Congress would come up with a way to help the island by March 31 -- and that Puerto Rico would not get a taxpayer bailout.

The House Republican plan to fix Puerto Rico has three key parts:

1. Puerto Rico gets a Financial Oversight Board -- A 5-member board would be appointed by the president and function like a quasi-Wizard of Oz for the island. The board would be tasked with coming up with a financial plan to get the island out of its mess.

2. A "time out" on lawsuits -- The bill grants Puerto Rico an 18-month respite from any lawsuits, including from creditors demanding payment. It's meant to give some breathing room so the Oversight Board can do its work in peace.

3. A "last resort" that's similar to bankruptcy -- The bill stops short of giving Puerto Rico the ability to declare bankruptcy (or giving it so-called Chapter 9 bankruptcy rights that other U.S. municipalities have). But the bill says if the Oversight Board comes up with a plan and the creditors still demand more, then the Oversight Board can head to court. In short, it means there is a possibility that the island's creditors could receive less than 100% of what they are owed.

What's next for Puerto Rico

Puerto Rico's governor and the island's many bondholders don't get along. They agree on little, but both sides immediately blasted the House Republican plan.

Bondholders want some sort of control board. They want someone they can trust overseeing the island's money after what they claim has been years of government mismanagement. But they don't want to get less than 100% of their money back.

"No one wants to say it, but the Puerto Rican government is broken," Joaquin Garcia de la Noceda told CNNMoney in February. He's a locksmith in San Juan, who has lost over $100,000 on his investment in the island's bonds.

Governor Alejandro Garcia Padilla wants to be able to declare bankruptcy. He says the bondholders are vultures who are squeezing the island. He called the plan for an Oversight Board "dishonorable" and "degrading" to Puerto Rico.

People familiar with the bill say it's only a first draft. There will be revisions. A hearing is set for April 13.

By Heather Long

Puerto Rico might CUT its minimum wage