Tag Archives: Debt

Drowning in debt, Connecticut faces budget crunch

FILE PHOTO: The Connecticut State Capitol pictured here in Bushnell Park, Hartford, Connecticut, U.S., August 17, 2017. REUTERS/Hilary Russ

By Hilary Russ

HARTFORD (Reuters) – Connecticut, home to hedge fund billionaires alongside cities mired in poverty, is racing against the clock to pass a budget or face further spending cuts to education and municipal aid across the state.

Nearly two months without a budget, Connecticut is getting crushed by a burdensome debt load that has squeezed spending and amplified legislative discord.

State lawmakers must agree on a biennial budget soon or else Governor Dannel Malloy’s executive order to slash state aid to municipalities and eliminate school funding for some districts will go into effect in October. The state faces a $3.5 billion deficit over the next two years.

Among the wealthiest in the United States, Connecticut has been strained by already high taxes, outmigration, falling revenues and $50 billion of unfunded pension liabilities.

Some $23 billion of outstanding municipal debt has also constrained spending. Bondholders must be paid ahead of most other expenses like non-essential services and payments to vendors.

The $2.85 billion of principal and interest the state paid on its bonds in fiscal 2017 was the highest in six years, according to preliminary unaudited information from State Treasurer Denise Nappier’s office that has not yet been published.

“The state invested in the wrong things for a period of time. It allowed its higher educational institutions to suffer while it sought to placate communities with respect to other forms of local reimbursement,” Malloy told Reuters during an interview in his office on Thursday.

“We built too many prisons, which we’re still paying off even while we’re closing them,” he said. The Democrat took office in 2011 and is not seeking a third term.

Further, the state’s budget crunch is threatening its cities including the state capital of Hartford, which is considering bankruptcy due, in part, to its dependence on state aid.

Connecticut has borrowed for decades to fund school construction, whereas nearly all other states typically borrow at the local level for those projects.

Lack of county governments means some other local costs are picked up by the state, including for all of its detention facilities.

Connecticut has piled on debt to bolster its public pensions, selling $2.3 billion of bonds in April 2008.

And again in December 2009, the state sold $916 million of economic recovery notes to close a budget deficit after depleting its rainy day fund during the Great Recession.

By many measures, Connecticut’s debt levels are the worst of the 50 U.S. states.

It has the most net tax-supported state debt per capita in the nation at $6,505, versus a median of $1,006, according to Moody’s Investors Service.

It has the highest debt service costs as a portion of state revenues, as well as debt relative to gross domestic product, Moody’s said.

Connecticut was downgraded by all three major Wall Street credit rating agencies in May.

Both Republicans and Democrats in the state legislature have proposed solutions, including a hard cap on annual bond sales.

Democratic legislators met with Millstein & Co., the same restructuring firm that advised Puerto Rico over its suffocating debt burden, according to The Connecticut Mirror newspaper.

Nappier proposed a new tax-secured revenue bond program in lieu of general obligation debt, which she says will lower borrowing costs and boost reserves.

But until lawmakers craft a budget, the state’s fiscal uncertainty is causing havoc among municipalities. Some are considering whether to delay the start of school or dip into reserves.

And for Hartford, the longer the state goes without a budget, the closer the city comes to a possible bankruptcy filing, said Hartford Mayor Luke Bronin, a 38-year-old former U.S. Treasury official.

“The lack of a state budget… makes a liquidity challenge come that much faster,” he said.

(Reporting by Hilary Russ in Hartford; Editing by Daniel Bases and Diane Craft)

Americans’ debt level notches a new record high

FILE PHOTO: A U.S. Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration/File Photo

By Jonathan Spicer

NEW YORK (Reuters) – Americans’ debt level notched another record high in the second quarter, after having earlier in the year surpassed its pre-crisis peak, on the back of modest rises in mortgage, auto and credit card debt, where delinquencies jumped.

Total U.S. household debt was $12.84 trillion in the three months to June, up $552 billion from a year ago, according to a Federal Reserve Bank of New York report published on Tuesday.

The proportion of overall debt that was delinquent, at 4.8 percent, was on par with the previous quarter. However a red flag was raised over the transitions of credit card balances into delinquency, which the New York Fed said “ticked up notably.”

Loosening lending standards have allowed borrowers with lower credit scores to access credit cards, Andrew Haughwout, an in-house economist, said in the report.

“The current state of credit card delinquency flows can be an early indicator of future trends and we will closely monitor the degree to which this uptick is predictive of further consumer distress,” he said.

Total U.S. indebtedness is about 14 percent above the trough of household deleveraging brought on by the 2007-2009 financial crisis and deep recession, a pull-back that interrupted what had been a 63-year upward trend.

Mortgage debt was $8.69 trillion in the second quarter, up $329 billion from last year, the report said. Student loan debt was $1.34 trillion, up $85 billion, while auto loan debt came in at $1.19 trillion, up $55 billion.

(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)

Shunned from bond market, U.S. Virgin Islands faces cash crisis

Doctor Michelle Berkely (L) and Chief Financial Officer Tim Lessing of the Juan F. Luis Hospital and Medical Center, talk to Reuters in Christiansted, on the outskirts of St Croix, U.S. Virgin Islands June 29, 2017. Picture taken June 29, 2017. REUTERS/Alvin Baez

By Robin Respaut

ST. CROIX, V.I. (Reuters) – For a glimpse at the precarious financial health of this Caribbean island, visit its public hospital.

Pipes underneath the emergency room collapsed in May, causing waste water to back up through the drains. Now workers and visitors – even patients – use portable toilets set up on the sidewalk. The hospital doesn’t have the cash for new plumbing.

For years the U.S. Virgin Islands funded essential public services with help from Wall Street. Investors lined up to purchase its triple-tax-exempt bonds, a form of debt free from municipal, state and federal taxes.

Now the borrowing window has slammed shut. Trouble in neighboring Puerto Rico, which recently filed for a form of bankruptcy after a string of debt defaults, has investors worried that the U.S. Virgin Islands might be next.

With just over 100,000 inhabitants, the protectorate now owes north of $2 billion to bondholders and creditors. That’s the biggest per capita debt load of any U.S. territory or state – more than $19,000 for every man, woman and child scattered across the island chain of St. Croix, St. Thomas and St. John. The territory is on the hook for billions more in unfunded pension and healthcare obligations.

“We have a government that we can’t afford, and now all of it is converging,” said Holland Redfield, a former six-term U.S. Virgin Islands senator who hosts a radio talk show about politics in the territory. “We’re getting to the point where we may have a potential meltdown.”

Ratings agencies have downgraded the islands’ credit ratings deep into junk territory. With the U.S. Virgin Islands shut out of the credit markets after a failed January bond issue, officials are scrambling to stabilize its finances after years of taking on debt to plug yawning budget holes.

The government proposes to slash public spending by 10 percent. It recently hiked taxes on liquor, cigarettes, sugary drinks and vacation timeshares. And it has threatened to auction homes and businesses of property-tax deadbeats.

Governor Kenneth Mapp is quick to reassure bondholders that they get first crack at one of the territory’s largest funding sources: rum taxes. The money pays debt service before heading to government coffers, a protection called a lockbox.

The U.S. Virgin Islands has “never been late on a payment, much less defaulted on a bond or loan agreement,” Mapp said during his State of the Territory address in January.

But how these islands will recover from years of budget deficits and a severe liquidity crisis remains to be seen. The territory lost its single-largest private employer five years ago when a refinery shut down. Gross domestic product has declined by almost one-third since 2008. At times this year the government was operating with just two days’ cash on hand.

Locals live with pitted roads, crumbling schools, electricity outages and deteriorating medical care.

At the Juan F. Luis Hospital and Medical Center, plumbing troubles are just the beginning. Doctors have stopped performing some vital procedures, including implanting pacemakers and heart defibrillators, because the facility can’t pay suppliers for the devices, officials say.

“We have gone from bad to worse, and the patients are the ones who are suffering,” said Dr. Kendall Griffith, an interventional cardiologist who recently left the island to take a job in a Georgia hospital. “It’s forcing physicians to make hard decisions.”

FORGOTTEN ISLANDS

Before Puerto Rico imploded under $70 billion in debt and $50 billion of unfunded pension liabilities, few in Washington noticed troubles brewing in the other inhabited U.S. territories of American Samoa, Guam, the Northern Mariana Islands and the U.S. Virgin Islands.

Residents of these places are U.S. citizens, but they can’t vote in presidential elections and their Washington delegates are non-voting figureheads. Despite high poverty rates and joblessness, the territories receive just a fraction of the federal funding allocated to U.S. states for entitlements such as Medicare and Medicaid.

To bridge the gap, some have turned to the bond market. Bond issues typically fund infrastructure and capital projects. But in the case of Puerto Rico and the U.S. Virgin Islands, officials increasingly relied on borrowed money to fund government operations.

Debt loads for both territories have grown to staggering proportions, now surpassing 50 percent of their respective GDPs. That’s higher than anywhere in the nation and sharply above the state median of 2.2 percent, Moody’s Investors Service found.

(For a graphic on U.S. territory debt, see: http://tmsnrt.rs/2h8TGIo)

Bond buyers for years whistled past the territories’ shaky finances, comforted in the knowledge that these governments couldn’t seek bankruptcy protections available to many municipalities.

“There was an idea that because of the lockbox structure and the fact that the territories did not have a path to bankruptcy, they had to pay you,” said Curtis Erickson, San Francisco-based managing director of Preston Hollow Capital, a municipal specialty finance company.

That all changed in 2016 when Congress passed legislation known as PROMESA giving Puerto Rico its first access to debt restructuring. The move sparked a ferocious battle among creditors to see who would shoulder the largest losses.

Investors quickly surmised the U.S. Virgin Islands might pursue the same strategy. In December, S&P Global Ratings downgraded the territory by a stunning seven notches to B from BBB+, putting it well below investment grade.

The U.S. Virgin Islands is adamant that S&P and other ratings agencies overreacted. The territory has been unfairly “tainted by Puerto Rico’s pending bankruptcy,” and has no intention of pursuing debt restructuring, said Lonnie Soury, a government spokesman.

In addition to tax hikes and budget cuts, he said the current administration is looking to do more with its tourism and horse racing industries to boost development.

BIG DEBTS, FEW OPTIONS

In the meantime, the U.S. Virgin Islands is trapped in a circle of hock that’s making it tough to maneuver.

The government and its two public hospitals, for example, owe a combined $28 million to the territory’s water and power authority, known as WAPA. In turn, WAPA owes about $44 million to two former fuel vendors.

Then there’s the $3.4 billion of unfunded liabilities for public pensions and retiree healthcare. The pension fund is 19.6 percent funded and projected to run out of money by 2023.

Pensioners can wait months before their annuities start, because the government is behind on its contributions. St. Croix resident Stephen Cohen, 67, said it took almost a year after he retired as a high school biology teacher before he received his first check in 2016.

“A lot of people are financially stressed,” Cohen said. “They didn’t realize how bad things would get.”

Territory officials can’t say how they will close a projected $100 million budget shortfall for this fiscal year. That’s on top of an accumulated net deficit of $4.4 billion, according to government financial records.

Back at Juan F. Luis Hospital, officials hope to move the emergency room into the cardiac wing so repairs can begin on the collapsed pipes.

The government has pledged $3 million for the job, but Tim Lessing, the facility’s chief financial officer, wonders if he’ll see it.

“The territory is in a tough position,” Lessing said. “Nobody’s buying the paper.”

(Editing by Marla Dickerson)

Illinois’ unpaid bills reach record $14.3 billion

FILE PHOTO - Bruce Rauner talks to the media after a meeting with Barack Obama at the White House in Washington December 5, 2014. REUTERS/Larry Downing/File Photo

By Karen Pierog and Dave McKinney

CHICAGO (Reuters) – Illinois’ unpaid bill backlog has hit a record high of $14.3 billion as the legislature nears a May 31 budget deadline, the state comptroller’s office said on Wednesday.

The bill pile jumped from $13.3 billion after the governor’s budget office this week reported more than $1 billion in liabilities held at state agencies, the comptroller said.

Illinois is limping toward the June 30 end of its second straight fiscal year without a complete budget due to an impasse between Republican Governor Bruce Rauner and Democrats who control the legislature.

“It’s clear the Rauner Administration has been holding bills at state agencies in an attempt to mask some of the damage caused by the governor’s failure to fulfill his constitutional duty and present a balanced budget,” Comptroller Susana Mendoza, a Democrat, said in a statement, adding that the governor’s office was keeping lawmakers in the dark about the true size of the backlog.

Eleni Demertzis, Rauner’s spokeswoman, said instead of the “same tired partisan attacks,” Mendoza should be talking “to her party leaders about working with Republicans to pass a budget that is truly balanced and job-creating changes that will grow our economy.”

Lawmakers face a May 31 deadline to pass budget bills with simple-majority votes. The Senate on Wednesday passed pieces of a long-awaited package to stabilize state finances, including for the current and upcoming fiscal years, authorization to borrow $7 billion to pay down the bill backlog and an overhaul to state pensions.

But the House-bound legislation faces an unclear future. The Senate defeated legislation to implement the budget bill, putting its fate in doubt, while Rauner remains another question mark.

He has conditioned his support of a budget on passage of changes to workers compensation laws and a long-term freeze on property taxes. A bill for a two-year local property tax freeze fell four votes shy in the Senate, leaving a significant opening for the governor to reject the entire Democratic-crafted spending package.

The busy legislative day also included Senate passage of a gambling-expansion bill authorizing a Chicago-owned casino and a school funding revamp that allocates $215 million to help Chicago’s cash-strapped schools pay teacher pensions this year.

Rauner’s office rejected the school bill, but did not immediately comment on the other legislation.

Illinois’ reliance on continuing appropriations, court-ordered spending and partial budgets has caused the unpaid bill backlog to balloon from $9.1 billion at the end of fiscal 2016.

(Editing by Meredith Mazzilli and Matthew Lewis)

Italy’s Renzi says August quake caused at least 4 billion euros of damage

Italian Prime Minister Renzi addresses the United Nations General Assembly in the Manhattan borough of New York

ROME, Sept 23 (Reuters) – An earthquake that killed 297 people in central Italy last month caused damage worth at least 4 billion euros ($4.5 billion), Prime Minister Matteo Renzi said on Friday.

Renzi, who is looking for as much fiscal leeway as possible from the European Commission as he prepares his 2017 budget, has said he expects earthquake-related costs to be excluded from the EU’s budget deficit limits.

However, he has remained vague on whether those costs should include only the immediate aid and reconstruction effort for the towns affected, or also costs related to a broader project to make Italy’s buildings more earthquake-resistant.

“We are looking at a minimum of 4 billion euros ($4.48 billion),” Renzi told reporters on Friday in his first estimate of the extent of the damage in the mountain towns hit by the Aug. 24 quake.

He said all money spent on making Italy’s schools earthquake proof would be excluded from EU’s Stability Pact which sets deficit ceilings for the bloc’s members. It remains to be seen whether the EU Commission will agree with this approach.

The government, which will publish new economic forecasts next week, is expected to sharply raise its target for the 2017 budget deficit from the current goal of 1.8 percent of gross domestic product.

Brussels says it has granted Italy “unprecedented” budget flexibility in recent years and is concerned about Rome’s inability to bring down its public debt, the highest in the euro zone after Greece’s as a percentage of GDP.

Renzi has insisted that the EU’S fiscal rules should be relaxed, and has attacked his fellow leaders for failing to
acknowledge that austerity policies have been counter productive.

European Commission President Jean-Claude Juncker said on Thursday Rome had already been given 19 billion euros of “flexibility” in its 2016 budget, in comments widely interpreted in Italy as a signal he may be reluctant to grant much more leeway for next year. ($1 = 0.8919 euros)

(Reporting By Gavin Jones; Editing by Toby Chopra)

U.S. household debt rises to $12.29 trillion in Q2

(Reuters) – U.S. household debt hit $12.29 trillion in the second quarter, up $434 billion from a year earlier as auto loans and credit card debt increased, a Federal Reserve Bank of New York survey showed on Tuesday.

Some 4.8 percent of the outstanding debt was in some stage of delinquency, down from 5.6 percent from a year ago, according to the quarterly household debt and credit report.

Auto debt was $1.10 trillion, up $97 billion from a year earlier, while the aggregate credit card limit increased for the 14th straight quarter, reflecting Americans’ easier access to credit as the 2007-2009 financial crisis fades.

Mortgage debt was $8.36 trillion, up $246 billion from last year, while student loan debt was $1.26 trillion, up $69 billion.

(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)

Millennials face debt – and denial

A food delivery-man rides a bicycle up 9th Avenue as snow continues to fall

By Bobbi Rebell

NEW YORK (Reuters) – Debt may be a drag for millennials, but apparently not as much as cooking their own dinner.

A survey from Citizens Bank found that fewer than half (47 percent) of millennials, those in the 18-35 age group, who are college graduates would be willing to limit their online food delivery in return for reducing their student loans.

Other priorities? Concerts, sporting events and lattes, as well as travel and vacations.

The prospect of limiting any of these luxuries got the “no thanks” from the majority of millennials who were asked if they would cut back to lower their student loans. The same holds true for cutting Internet service.

Despite being so unwilling to give up life’s little pleasures, more than half (57 percent) said they regret taking out as many student loans as they did, and about a third said they would not have even gone to college if they knew how much it was going to cost them.

That is a big conflict, says Brendan Coughlin, president of consumer lending at Citizens Bank. “They are very committed to living their life the way they want to live their life, and as frustrated as they are by student loans, they are not willing to make those lifestyle tradeoffs,” he said.

Part of the problem may be one of denial and math. The same survey found that nearly half of millennials (45 percent) with student loans do not even know how much of their annual salary they spend on them. It is 18 percent on average, for the record.

On the upside, the vast majority do at least know what they owe – over $40,000 for most. But more than a third (37 percent) are clueless on the interest rate they pay.

Some suggestions for getting that number down:

KNOW WHAT YOU OWE

The National Student Loan Data System tracks federal loans (www.nslds.ed.gov or 1-800-4-FED-AID). For private student loans, borrowers should check out their annual credit reports (www.annualcreditreport.com).

REFINANCE

Three-quarters of millennial graduates told Citizens Bank that refinancing is not part of their plan to pay off their student loans. Millennials who have graduated and have jobs often qualify for better rates than they did when they had no income at the start of school.

In addition to Citizens Bank, SoFi, CommonBond, Wells Fargo, Earnest and other institutions offer refinancing programs. There is also an opportunity for students to moved from variable-rate loans to fixed-rate ones as a hedge against rising interest rates.

At Citizens, a regular undergraduate loan ranges from 5.25 percent to 11.75 percent. Refinancing loans start as low as 4.74 percent. Variable rates range from 2.44 percent to 9.44 percent. On average, a customer will save 1.5 percent APR when refinancing, or $147 a month, according to Citizens.

GET HELP AT WORK

A number of companies, including Fidelity and PwC, are offering help to pay down student debt. This is becoming a more mainstream perk and is worth looking into with your current employer – and keeping in mind if you are looking for a job.

While only about 3 percent of employers are offering this perk, according to the Society for Human Resource Management, it is gaining steam as companies work to attract and retain millennial workers.

SEEK FORGIVENESS

Some professions, such as public service jobs, offer student loan forgiveness. They include public defenders, law enforcement officers, doctors, nurses and some teachers.

For example, teachers who work in low-income school districts and teach certain needed subjects may qualify for even full cancellation of some types of loans.

Volunteering can also pay off. Many organizations like the Peace Corps and AmeriCorps offer eligibility for student loan payments through Public Service Loan Forgiveness (PSLF) or other options.

(Editing by Beth Pinsker and Dan Grebler)

Euro zone, IMF split over how much Greece needs to reform

By Jan Strupczewski

BRUSSELS (Reuters) – Euro zone lenders and the International Monetary Fund disagree over how much more Greece needs to do to reform its economy, a dispute that may delay new payouts and the start of debt relief talks, officials said.

Greece has been kept afloat since 2010 by IMF and euro zone bailouts. The lenders have disagreed in the past, but they have managed to resolve their issues before they got much publicity.

But after Athens had to ask for a third bailout last year, some in the IMF wanted to stay out of yet another program unless they were sure it would get Greece back on its feet.

“The main problem now is disagreement between the institutions, because that will harm the credibility of any solution,” one senior official said. “They must get their act together and agree on a scenario and on policy measures.”

IMF and euro zone officials hope to reach a compromise on Greece in talks this week, before a meeting of euro zone finance ministers on Monday. Senior officials from both sides are to meet for dinner on Wednesday in Brussels to discuss the issue.

Until the euro zone and the IMF agree, they cannot decide if Greece has met the first requirements for the payout of new loans. Nor can the euro zone start discussions with Athens on debt relief that would help make Greece’s huge debt sustainable.

Greece has no major debt redemptions due until July, giving the lenders and Athens time to find a compromise. But the drawn- out talks undermine investor confidence.

“If we now enter a cycle of whether this review will be concluded or not, it will generate the kind of insecurity we more or less had last year … with the loss of confidence and capital flight,” a third official close to the lenders said.

The dispute focuses on what Greece has to do to reach a 3.5 percent primary surplus in 2018 and keep it there so that it no longer has to borrow from the euro zone to remain solvent.

Officials said the IMF had a more cautious outlook than euro zone institutions on Greek economic growth and fiscal performance, as experience showed Athens underperformed targets.

The IMF believes Greece’s primary surplus in 2018 will be around 2 percent with the current reforms. Growth will be about a percentage point lower than forecast by the euro zone. Greece should therefore be more ambitious with reforms, especially with the most politically difficult, pension reform.

REFORMS NOT ENOUGH

Yet Greece’s commitments are spelled out in a memorandum of understanding (MoU) it signed with the euro zone in August. It says the pension reform will deliver savings of 1 percent of gross domestic product in 2016.

The draft reform prepared by Athens does that, but Greece also understood the deal from August a bit differently.

“In summer we promised to do 1 pct GDP of extra measures to be legislated in 2016 but to be implemented in 2017 and 2018. The IMF is asking for even more measures than this, which is very difficult for us to understand,” Greek Finance Minister Euclid Tsakalotos told a hearing in the European Parliament.

“We feel that we have already compromised. I don’t think we have to make a greater compromise … because we are at the end of a recession and … we have already had 11 cuts,” he said.

The IMF was involved in talks on the memorandum, but did not sign off on it and is not formally part of the bailout. It says the numbers don’t add up.

“To reach its ambitious medium-term target for the primary surplus of 3.5 percent of GDP, Greece will need to take measures in the order of some 4-5 percent of GDP,” the IMF’s head of the European department, Poul Thomsen, wrote on Feb 11. “We cannot see how Greece can do so without major savings on pensions.”

The pension reform could be less ambitious and the 2018 primary surplus lower if the euro zone offered Greece greater debt relief, Thomsen said.

That would irk some in the euro zone who have to maintain similar surpluses to keep debt sustainable or who, like the Baltics or Slovakia, find it difficult to justify Greeks getting bigger pensions than their own citizens.

“We should do what we promised in the summer, and the IMF should pressure the EU to make that sustainable (with more debt relief),” Tsakalotos told European parliamentarians.

Another snag is that the IMF wants debt relief to solve the issue once and for all. The euro zone wants a staggered scheme, linked to conditions over time.

While the IMF is not formally part of the third bailout, the euro zone would very much like it to be. But the Fund will not join unless their views align.

The approval of the IMF is also a must for northern European countries like Germany, Austria or Finland, which believe the European Commission is too lenient towards Greece and too optimistic with forecasts.

(Reporting By Jan Strupczewski, additional reporting by Paul Taylor and Francesco Guarascio in Brussels, Gernot Heller in Berlin, editing by Larry King)

Puerto Rico Governor Says Country Can’t Pay Debt

While much of the world was focused on Greece and a potential default that could cause ripples throughout the European economy, another nation has announced they will be unable to pay their bills.

Puerto Rico governor Alejandro Garcia Padilla told the New York Times that the country’s economy was close to a “death spiral” and that it cannot pay the $72 billion it owes creditors.

“The debt is not payable,” García Padilla said. “There is no other option. I would love to have an easier option. This is not politics, this is math.”

“My administration is doing everything not to default,” García Padilla added. “But we have to make the economy grow,” he added. “If not, we will be in a death spiral.”

The self-governing U.S. commonwealth has been in a recession since 2006.

Gracia Padilla said that unless creditors come to the table and “share the sacrifices” made by the citizens of the country, it could be bad.

“If they don’t come to the table, it will be bad for them,” he told the Times.  “What will happen is that our economy will get into a worse situation and we’ll have less money to pay them. They will be shooting themselves in the foot.”

Because Puerto Rico is a territory and not a state, it cannot file for bankruptcy in the same manner that Detroit, Michigan did in 2013.

Croatia Dissolves All Debt For Poor

Poor residents of Croatia is going to breathe easier on Monday when the government cancels all debt.

The move by the government is aimed to “kickstart the nation’s economy”

Any citizen earning under $184 U.S. dollars a month, rent their property and unable to pay off debts will get up to $5,146 wiped away.  Power companies, loan brokers, banks and phone companies are part of the businesses that will have to swallow the losses.

“We are doing all we can to make people’s lives easier in this protracted and strenuous crisis and give them a chance for a fresh start,” Prime Minister Zoran Milanovic said in a press conference.

Officials estimate that 60,000 Croatians will be receiving debt relief under the plan.  The action will cost creditors as much as $309 million U.S. according to estimates.

Croatia has been suffering from a massive recession for seven years.