This week’s likely top stories: Colombia and FARC agree to clear landmines; Peru recalls ambassador to Chile; Citigroup to sell Central American entities; Puerto Rico debates possible VAT; Chilean officials charged with corruption.
Colombia and FARC to Remove Landmines: The Colombian and the FARC guerrilla group reached an agreement on Saturday to work together to clear the country of landmines and explosive devices. Their joint statement was read by Cuba and Norway, the two guarantor countries for the peace process, and the Norwegian People’s Aid (NPA) will assist in the de-mining efforts. This weekend’s agreement marked important progress in the negotiations; for the first time, high-level military commanders were present, and the removal of mines and explosives is a major step toward disarmament. Over 11,000 Colombians have been hurt or killed by landmines in the last 15 years.
Peru Recalls Ambassador to Chile: On Saturday, Peru recalled its ambassador to Chile over spying accusations. Last month, the Peruvian government announced that three Peruvian naval employees were being investigated for allegedly disclosing military information to Chile. On February 20, Peruvian President Ollanta Humala sent Chile a diplomatic note requesting an answer regarding the claims, although Peru has not yet received a response. Chilean Foreign Minister Heraldo Muñoz stated that Chile “does not promote or accept acts of espionage in other states or its own territory.” Peruvian Prime Minister Ana Jara claimed that Peru will not send its ambassador back to Chile until the issue is addressed. Chile and Peru have long harbored tensions over their borders.
Citigroup Inc. to Sell Central American Operations: Citigroup Inc. may soon sell its Central American retail units to Banco Popular Español S.A., which is based in Madrid, Spain. According to a source’s comments on Saturday, Citigroup aims to sell its retail operations in Costa Rica, El Salvador, Guatemala, Nicaragua, and Panama in an effort to leave markets yielding low revenues and to streamline operations. Citigroup hopes to sell for $1.5 billion. The deal is not yet finalized and is subject to change. Spokesmen for both banks declined comment on the matter.
Puerto Rico Proposes Plan to Combat Tax Evasion: Puerto Rican Governor Alejandro García Padilla is supporting a new plan to impose a 16 percent value-added tax (VAT), in an effort to reduce the territory’s $73 billion public debt. The plan, which is currently being considered by lawmakers, would replace Puerto Rico’s current tax rate of 7 percent and would curb tax evasion on the island. Pending approval, producers would pay the VAT on raw materials, and include it in the price given to retailers, and the VAT would eventually be paid by consumers. Charging the VAT at each stage in the sales process would ensure proper collection. Currently, Puerto Rico’s informal economy is estimated to be worth $16 billion, a figure representing approximately 25 percent of the GDP. García Padilla is expected to make an announcement regarding the plan today.
Chilean Corruption Scandal Racks Opposition Party: After court hearings last week, a tax auditor, a former government official and four executives from the Penta Group, one of Chile’s largest financial groups, were jailed on Saturday for tax fraud, bribery and money laundering. Ten defendants were implicated in the scandal, including two tax officials and two politicians from the Unión Demócrata Independiente (Independent Democratic Union—UDI) opposition party. In a public declaration on Monday, La Superintendencia de Bancos e Instituciones Financieras (Superintendency of Banks and Financial Institutions—SBIF) announced that the Penta executives, including owners Carlos Délano y Carlos Eugenio Lavín, would be unable to maintain their positions as shareholders in the company.
Likely top stories this week: the deadline passes for children of undocumented immigrants to apply for legal status in the Dominican Republic; U.S. companies stand to lose billions of dollars in Venezuelan currency losses; Michelle Bachelet moves to end Chile’s abortion ban; relatives of Mexico’s 43 missing students meet with UN officials in Geneva; Puerto Rico’s economy continues to suffer.
Children of Immigrants to Lose Legal Status in the Dominican Republic: A deadline for the children of undocumented immigrants in the Dominican Republic to register for legal status expired on February 1 at midnight, potentially leaving some 200,000 people stateless—most of them of Haitian descent. The deadline was part of a May 2014 law designed to normalize the status of the children of undocumented immigrants in the D.R. after a September 2013 court ruling revoked the citizenship of Dominican-born children of undocumented immigrants, sparking an international outcry. Thousands of people affected by the law formed long lines to register themselves in the past weeks, but it is unclear if the government will extend the deadline. Human rights groups have harshly criticized the government’s failure to adequately publicize information about the law, and so far, only 5 percent of the estimated 110,000 people eligible to apply for legal status have been able to do so. Meanwhile, the government of the Bahamas has also introduced strict new requirements that have disproportionately affected Haitian immigrants and their children.
U.S. Companies Losing Billions in Venezuelan Currency: At least 40 U.S. member of the S&P 500, including General Motors and Merck & Co Inc., stand to lose billions of dollars in Venezuelan currency losses, a Reuters analysis shows. The American automotive and pharmaceutical giants together have at least $11 billion in assets in Venezuelan bolivars. Companies like Clorox have already exited the South American nation due to continued devaluation, insecurity and unfavorable conditions. While the official exchange rate is 6.3 bolivars to the dollar—with government-set rates SICAD 1 and SICAD 2 at 12 and 50 bolivars to the dollar, respectively—the black market rate registered at 190 bolivars to the dollar on Sunday.
Bachelet Proposes End to Total Abortion Ban in Chile: Chilean President Michelle Bachelet announced on Saturday that she would submit a bill to Congress that would end Chile’s total ban on abortions. The bill would permit abortions up to the 12th week of pregnancy in the cases of rape, a life-threatening pregnancy, or if the fetus will not survive—and abortions would be permitted until the 18th week for girls aged 14 and younger. Chile’s total ban on abortions began in 1989, a legacy of the 1973-1990 military dictatorship of Augusto Pinochet. The anti-abortion lobby and Catholic Church remain a powerful influence in Chile, but some 15,000 to 160,000 abortions are still carried out in the country each year. “Facts have shown that the absolute criminalization of abortion has not stopped the practice,” Bachelet said. Chile, along with El Salvador, the Dominican Republic, Nicaragua, Honduras, Haiti, and Suriname are the only countries in Latin America that outlaw abortion under any circumstance.
Relatives of Mexico’s Missing Students Rally in Geneva: Parents and relatives of the 43 Mexican students who went missing after a protest in Iguala, Mexico in September are in Geneva this week meeting with the United Nations Enforced Disappearances Committee. To date, no one has been tried in the case of the missing students. The parents reject Mexican officials’ claim that the students were killed and burned in a landfill by members of the Guerreros Unidos gang, asserting that the government is holding the students illegally. At least 23,721 people are missing in Mexico, according to official figures. The Mexican National Human Rights Commission will present a report to the UN today, requesting that the Enforced Disappearances Committee make recommendations to Mexico’s government.
Puerto Rico Enters Eighth Year of Recession: The economically battered U.S. commonwealth saw its economic activity drop 1.4 percent between December 2013 and December 2014. Puerto Rico is in its eighth straight year of recession, with over $73 billion in public debt. Puerto Rican government officials met with the Federal Reserve Bank of New York in January to discuss strategies for strengthening the territory’s economy. The Puerto Rican House approved the borrowing of an additional $225 million for public works last Thursday.
Dominican President Danilo Medina arrived in Puerto Rico yesterday to meet with Puerto Rican Governor Alejandro García Padilla in a series of meetings aimed at creating stronger ties between the Dominican Republic and Puerto Rico, as well as improving relations in Latin America and the Caribbean. New agreements were also aimed specifically at expanding the job market and increasing trade through both imports and exports.
President Medina was joined by a delegation of thirteen Dominican government officials, the largest group of Dominican officials to visit the Puerto Rico on business. While the topic of the economy dominated the conversation, the two leaders also discussed other pressing topics, signing a historic agreement divided into 10 sections—three on education, two on the environment, two on trade, two on security, and one on taxes.
Although Puerto Rico remains a territory of the U.S., the accords will allow for greater strategic collaboration with other neighboring countries and territories. They will also give the Dominican Republic easier access to the U.S. market through Puerto Rico, while at the same time creating greater unity in the Caribbean.
“We firmly believe that our foreign relations should start with strengthening relationships with our neighboring [countries and territories] that will make us all successful,” said President Medina.
All eyes were on Detroit earlier this month as Federal Judge Steven Rhodes ruled that the city could discharge public pensions, along with other debt, as it restructures under Chapter 9 bankruptcy.
While other cities look at the ruling as a viable—though unfortunate—solution for their financial woes, there is one especially troubled economy that will not be able to take advantage of the ruling, or file for bankruptcy at all: Puerto Rico.
Last Wednesday, Moody’s Investors Service announced that it may downgrade Puerto Rico’s general-obligation debt to “junk” (noninvestment) status. All three credit rating agencies currently have the island at just above junk status, but with "weakening liquidity, increasing reliance on external short-term debt, and constrained market access, within the context of a weakened and now sluggish economy," a downgrade seems increasingly likely.
Puerto Rico’s high debt is exacerbated by its pension obligations—25 percent of all workers were employed by the Puerto Rican government before former Governor Luis Fortuño cut more than 40,000 jobs during his tenure—as well as budget deficits that predate the Great Recession and the prolonged deterioration of the island’s economy.
Now entering its eighth straight year of recession, Puerto Rico has found it difficult to recover as U.S. federal funding has dried up, energy prices have skyrocketed and tens of thousands of Puerto Ricans have fled the island looking for better opportunities on the mainland. Although Detroit’s debt pales in comparison to Puerto Rico’s—as of 2013, the island’s debt is nearly four times larger than Detroit’s –as a commonwealth, Puerto Rico is ineligible for bankruptcy.
As the U.S. government’s shutdown stretches into its second week, local economies everywhere are suffering—but perhaps none as acutely as Puerto Rico.
The Island of Enchantment, which is home to nearly four million people, is slogging through its seventh straight year of recession with an economy that has already contracted 5.4 percent since August 2012. And the shutdown is making it difficult for the U.S. territory to overcome the economic difficulties that have plagued it for the better part of the decade.
Though Puerto Rico’s average per capita income is half that of Mississippi’s— the poorest state in the union—consumer prices on the island are sky high. On average, electricity costs on the island are double those on the mainland, and the cost of importing 85 percent of Puerto Rico’s food is often passed onto the consumers.
The result: nearly half the population lives under the poverty line, and Puerto Ricans are abandoning the island at a record pace due to high costs, a wobbly economy and high unemployment. The government shutdown that began on October 1 will only exacerbate Puerto Rico’s already fragile economy.
The island is burdened by $69 billion in public debt and relies on federal funding for 39.6 percent of the money it spends, compared to the average of 26.2 percent for U.S. states. While less than $6.6 billion of the funding the island receives from the federal government is considered discretionary, the unintended side effects of the shutdown will ripple through various industries and could bring the unstable economy to a grinding halt.
With Puerto Rico’s unemployment rate at a staggering 13.9 percent—the highest in the country—the federal shutdown means the continued loss of what little employment is available on the island. Federal employees, already suffering with furloughs due to sequestration, number about 10,000 on the island; about half of those are considered non-essential and affected by the shutdown. The longer Congress fails to pass a resolution, the more likely it is to increase the unemployment rate in Puerto Rico where workforce participation is just 40 percent and there are fewer than 900,000 jobs.
But the shutdown also threatens to affect the other main source of income on the island: tourism.
In 2011 alone, tourism contributed over $6 million to the GDP and supported 59,500 jobs across sectors. The lost revenue from the closure of some of the island’s main tourist attractions, including Fort San Felipe del Morro and Fort San Cristobal in Old San Juan, as well as El Yunque National Park— the only tropical rainforest in the U.S. National Forest System —will also have a negative impact on local businesses that depend on tourism.
The negative consequences go further still. Besides decreasing the revenue from the island’s most popular industry, the shutdown affects more than just vacationers and tourist destinations. Perhaps the most dangerous consequence of the shutdown will be the reduced resources to combat violent drug crime.
With a per capita murder rate six times that of the U.S. mainland, more than 70 percent of homicides in Puerto Rico were related to the drug trade in 2012. Up until recently, the federal government paid little attention to what was happening on the island. By 2012, Puerto Rico had received just $260 million to combat drug-related crime—compared to the $1.6 billion that the U.S. initially pledged to Mexico as part of the Mérida initiative.
This all changed with Operation Caribbean Resilience, which began in July 2012—one year after murders in Puerto Rico surged to a record 1,117 per year. While the drug trade began to thrive on the island in the 1980s, it saw a dramatic spike in drug violence 2009, when tighter security at the U.S.-Mexico border closed off traditional drug trafficking routes.
While the federal government has sent 30 additional Homeland Security investigation agents to Puerto Rico and the Coast Guard has increased patrols of the Caribbean smuggling routes, the shutdown affects federal agencies on the island that are already chronically understaffed. Even the U.S. District Court for the District of Puerto Rico halted new judicial activities as of October 1.
With more than 43,000 pounds of narcotics seized in 2012 alone, it is clear that the U.S. can’t afford to neglect nearly 4 million citizens affected by the drug war due to partisan politics.
On the day of the shutdown, the FBI announced that it had dismantled a powerful drug organization in Puerto Rico that had generated over $100 million in revenue since 2005. I applaud that success and the new U.S. interest in the Caribbean—and recognize that federal agencies such as the FBI and Coast Guard are not currently affected by the shutdown.
Yet with chronically understaffed federal offices—even when the government is functioning at its full capacity—the shutdown seems poised to stifle the progress that has been made to reduce crime on the island.
Top stories this week are likely to include: Chávez designates successor as he heads to Havana; Puerto Rico convenes legislature for statehood; Arab-Latin American Forum in Abu Dhabi; and impact of recent energy takeover deals in Canada.
Developments in Venezuela: This is the final week of campaigning in Venezuela’s regional elections, and the electorate will vote on Sunday for state governors and legislators. The most important contest is the gubernatorial race in Miranda, Venezuela’s second most populous state, where chavista loyalist and former Vice President Elías Jaua faces off against presidential runner-up Henrique Capriles Radonski. Furthermore, after President Hugo Chávez’ announcement last Saturday night that he is returning to Cuba for surgery today and having designated Vice President Nicolás Maduro as his heir should he not be able to lead, many in Venezuela will wonder about the severity of Chávez’ cancer and the future of his Bolivarian revolution. Notes AQ Editor-in-Chief Christopher Sabatini, “Now with President Chávez naming his successor, the gubernatorial election in Miranda is becoming a test of succession within the opposition over who could potentially have the legitimacy to lead in the post-Chávez era.”
Extra: Stay tuned for a Web Exclusive this morning from Javier Corrales, Amherst College professor of political science and AQ editorial board member, on Chávez’ announcement.
Puerto Rico Discusses Next Steps for Statehood: After Puerto Ricans rejected their present commonwealth status and 61 percent of respondents backed statehood in a referendum last month, Governor Luis Fortuño plans to call a special session of the legislature to discuss asking the U.S. federal government to honor Puerto Ricans’ request. However, although Puerto Rican voters supported statehood last month, they voted out Governor Fortuño and instead selected Alejandro García Padilla whose Partido Popular Democrático (Popular Democratic Party) wants to keep Puerto Rico as a commonwealth.
Arab-Latin American Forum: In recognition of the growing economic ties between Latin American and Arab countries (roughly $30 billion annually) Abu Dhabi, United Arab Emirates (UAE) will host a forum this Saturday for representatives of the two regions. UAE Foreign Minister Shaikh Abdullah bin Zayed Al Nahyan has stated that Arab states’ interest in Latin America goes beyond trade to other aspects of bilateral cooperation—such as food security, environment, education, and culture.
Impact of Canada Energy Deals: After Canada’s trade ministry rejected the takeover of Progress Energy Resources Corp. by a Malaysian state-owned enterprise in October to much disagreement, it seemed to have reversed course—approving the deal last Friday as well as the takeover bid of Canadian firm Nexen by the Chinese firm China National Offshore Oil Corporation on the same day. How will Canadians react to these deals: as necessary alliances for more capital inflow, or as strategic assets in the hands of foreign investors?