Puerto Rico’s economy in limbo as governor rejects debt deal

Puerto Rico’s government announced in 2015 that it was unable to pay its more than $70 billion public debt load and filed for the largest US municipal bankruptcy in May 2017. (AFP)
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Updated 10 February 2020

Puerto Rico’s economy in limbo as governor rejects debt deal

  • Gov. Wanda Vázquez says settlement places too heavy a burden on the island’s retirees and noting that it still requires legislative approval
  • Puerto Rico filed for the largest US municipal bankruptcy in May 2017

SAN JUAN, Puerto Rico: Puerto Rico’s fragile economy is facing an uncertain future after the island’s governor rejected a settlement announced late Sunday with bondholders that would reduce the US territory’s public debt by 70 percent.
The settlement is the biggest one to date since the island’s government announced in 2015 that it was unable to pay its more than $70 billion public debt load and filed for the largest US municipal bankruptcy in May 2017.
It’s unclear whether the deal will become final, with Gov. Wanda Vázquez saying it places too heavy a burden on the island’s retirees and noting that it still requires legislative approval. The deal also has to be approved by a federal judge overseeing a bankruptcy-like process for Puerto Rico.
“If the bondholders receive better treatment in the bankruptcy process, so should retirees,” she said. “This is an issue of basic justice.”
She said bondholders received new legal protections in amendments made to a September 2019 adjustment plan, but that retirees did not receive anything additional.
It’s the latest clash between Vázquez and a federal control board overseeing Puerto Rico’s finances, which reached the deal with several groups of bondholders to reduce the island’s bond debt from some $35 billion to roughly $11 billion.
Natalie Jaresko, the board’s executive director, said the island’s bankruptcy needs to be resolved.
“The new agreement is another step forward for Puerto Rico, one that gets the island much closer to ending bankruptcy and to the beginning of a true economic recovery,” she said in a statement.
Board members did not respond to the governor’s rejection of the settlement, and a board spokesman did not return a call for comment.
The announcement comes as Puerto Rico struggles to recover from Hurricane Maria, which hit as a Category 4 storm in 2017, and a series of strong earthquakes that have damaged or destroyed hundreds of buildings along the island’s southern region.
Over the weekend, Puerto Rico government officials including Vázquez accused the board of delaying approval to release funds to help those affected by the quakes, accusations that the board denied in a letter earlier on Sunday before it announced the debt deal.
“Allegations that the...board has over 50 pending requests including for food, water and portable toilets are untrue,” it said. “None of the ten requests received were for portable toilets or water. All requests were processed within hours of receipt.”
Many have criticized Vázquez’s administration over its response to the 6.4 earthquake that killed one person on Jan. 7 as heavy aftershocks keep further damaging buildings.
Meanwhile, Puerto Rico economist José Caraballo told The Associated Press that he worries the deal could threaten basic government services and leave the island without sufficient funds to respond to the pending needs from the hurricane and earthquakes.
“The risk of a second bankruptcy and a prolonged recession is bigger than before,” he said.
Puerto Rico is mired in a 13-year recession, and roughly half a million people have left the island in the past decade, fleeing from the economic crisis and the aftermath of the hurricane and earthquakes.


Commerzbank slapped with fine for deals with defunct Cypriot bank

Updated 05 July 2020

Commerzbank slapped with fine for deals with defunct Cypriot bank

  • Laiki, once Cyprus’s second-largest bank, was taken into administration and wound down in March 2013

FRANKFURT: Cyprus’s securities regulator has imposed a €650,000 ($730,800) fine on Germany’s Commerzbank for its role in transactions carried out by a local bank that collapsed during the country’s 2013 financial crisis.

The country’s CySEC commission said Commerzbank had been sanctioned over investment operations conducted by the now-defunct Laiki — also known as Cyprus Popular Bank — in 2011, following Laiki’s merger with Greece’s Marfin-Egnatia Bank.

Commerzbank declined to comment on the case, which followed an eight-year probe by Cypriot authorities.

The investigation, which was launched following calls by left-wing AKEL lawmaker Irene Charalambides, looked into whether the Cypriot deals may have broken laws prohibiting a company from buying its own stock.

CySEC said Laiki invested in two structured products issued by Commerzbank in 2008. Marfin-Egnatia, which was at that time a Laiki subsidiary, was an index sponsor responsible for the composition of the portfolio.

As a result of the 2011 merger between Laiki and Marfin-Egnatia, Laiki became the index sponsor, creating a conflict of interest, CySEC said.

It said Laiki and Commerzbank acted in “concert” to manipulate the market in relation to Laiki shares on several occasions in April and May 2011.

CySEC said it had not fined Laiki because it is in administration and did not want to put an additional burden on former depositors, bond holders and shareholders.

Laiki, once Cyprus’s second-largest bank, was taken into administration and wound down under terms of a €10 billion international financial assistance package to Cyprus in March 2013.

Some €4.3 billion in uninsured deposits exceeding the EU threshold of 100,000 were wiped out, and thousands of people lost their life savings.

Charalambides said she felt vindicated by the result of the investigation.

“The resolution authority should consider the possibility of civil lawsuits against Commerzbank to ensure that the funds channelled to these structured bonds, with the objective of manipulating shares, be returned, and given to depositors whose funds were subjected to a haircut,” she said in a statement.