Puerto Rico, Venezuela: Countries in Crisis

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Puerto Rico’s government was supposed to pay up May 3. They owe $370 million in bond payments. After spending the weekend to try to negotiate a settlement, officials came up short and have decided to default.

The total due on Monday is $422 million, but Puerto Rico has enough to pay $22 million in interest and restructure about $30 million, which leaves it $370 million short. Another $50 million due on Monday will also be paid. The government said it could not pay more without sacrificing basics–including keeping schools and public hospitals open.

The default will likely prompt lawsuits from creditors.

Puerto Rico has an overall public debt of $70 billion. The governor blamed the U.S. Congress for failing to pass a bill that would create a control board to help manage the debt and oversee debt restructuring. Congress is in recess until next week; there are liberals and conservatives on both sides of the bailout issue. An even larger payment is due July 1.

Why this Matters: There is a long list of governments in Puerto Rico that didn’t make the hard choices to cut spending. Widespread corruption and inefficient state-run utilities added to the problem.

In 1976, Congress ruled employees of U.S. corporations operating there do not have to pay income tax, and when the exemption began phasing out in 1996, Puerto Rico experienced an economic decline.

There is also a law called the Jones Act that bars ships of foreign registry from traveling from one U.S. port to another without first transferring cargo to a U.S. ship. Puerto Rico is often the second port of call, which makes the goods more expensive. Conservatives at the Heritage Foundation suggest that the Jones Act should be repealed. They should also be exempt from the federal minimum wage requirement, which was implemented in the 1970s and destroyed almost ten percent of the island’s jobs.

How to Pray: That Puerto Rico’s financial problems serve as an object lesson for Americans who want to implement higher minimum wages and refuse to spend responsibly. May the Lord give Congress wisdom to deal with this problem.

Venezuela’s economic, social, and political decline recently hit a new low when the government reduced the work week of public sector employees to two days. They hoped that this would cut down on the use of electricity.

Venezuelans are enduring multiple problems. Besides a long season of rolling blackouts, a drought now threatens hydropower output from the Guri Dam. Food is also in short supply. The rate of inflation is around 300 percent annually and they face a potentially catastrophic default on foreign debt. Yet, on Saturday, President Nicolas Maduro announced a 30 percent hike in the minimum wage–the 12th increase since he took office.

Maduro’s first three years in office saw an economic crash and his ruling party split into several factors. Maduro’s wife, Cilia Flores and Diosdado Cabello, a legislator, are being investigated for criminal activities.

Why this Matters: Maduro succeeded Hugo Chavez, who drove the country to the brink of collapse. He is opposed to reform and any sort of dialogue with the opposition party. Venezuela, like Greece and France, has adopted many features of Communism. One very crippling decision was to let the unions and bureaucrats set wages, rather than allowing the markets to do so. If this economic crisis continues, analysts predict a financial default and widespread social unrest may occur.

How to Pray: for the people of Venezuela to wake up! May God lead the Christians and bring down the wicked.

Isaiah 56:11 – Yea, they are greedy dogs which can never have enough, and they are shepherds that cannot understand: they all look to their own way, every one for his gain, from his quarter.

Psalm 7:11 – God judges the righteous, and God is angry with the wicked every day.

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