As tumultuous 2015 draws to a close, Asia Unhedged finds itself waxing philosophical.
One of the final headlines of the year has Garcia Padilla, the hapless governor of the US territory of Puerto Rico, scrambling to meet a Jan. 1 deadline for a near-$1 billion debt payment.
The Caribbean island with a scant population of 3.5 million has already defaulted on some of its roughly $70 billion in debt, which the government admits is not payable and requires restructuring. Wow! That makes Puerto Rico the American Greece!
China found itself caricatured in the US press this year for supposedly coddling zombie companies and regulatory agencies whose left foot didn’t know what the right foot was doing. Evil Fu Manchu China, in the wake of a devastating stock market crash, a slowing economy and a spiraling shadow loan problem was going to destroy the world.
But in Puerto Rico’s case, we have a US territory with all the checks and balances of the much-vaunted US financial system about to go on the rocks. China’s economy, on the other hand, is stable and not about to lead the world down a dark pit.
Some may say it’s a stretch to compare the financial travails of tiny Puerto Rico with those of China, the world’s second largest economy. But Asia Unhedged thinks it’s more like mixing rice and beans.
If anything, the fiscal missteps of a minuscule island like Puerto Rico (which is part of the US) should be relatively easy to fix when compared to a gargantuan (and still thriving) economy like China’s where the challenges of throwing the right levers are some of the greatest in human history.
Reuters reports that Puerto Rico’s plight has gained increasing attention in Washington D.C., where the US Treasury has been pushing Congress to allow the island to restructure its debts under US bankruptcy law. The House is expected to hold a Jan. 5 hearing on Puerto Rico’s financial problems. OMG! Did someone whisper the word “bailout”?
Let’s hope Washington acts. But as the New Year approaches Asia Unhedged thinks Puerto Rico’s impending default offers a constructive moral point. Financial crises, big and small, are common to all countries — as certain events in 2008 involving subprime mortgages more than show.
As the human comedy resumes in 2016, the US and China would do well to focus more on what they have in common and less on differences. In a global financial house with fragile glass walls, it isn’t a good idea to go around casting stones.