Puerto Rico economy shrinks for 13th straight month - govt data

NEW YORK Tue Feb 11, 2014 12:04pm EST

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NEW YORK Feb 11 (Reuters) - Puerto Rico's economy in December contracted for a 13th straight month compared to a year earlier, government data showed on Tuesday, suggesting the island is no closer to exiting a multi-year recession.

The Government Development Bank said its Economic Activity Index, which tracks employment, gasoline sales and other indicators on the island, declined to 124.5 in December, 5.2 percent below its level a year earlier.

Compared to November, the economy shrank 1 percent, snapping a three-month run of monthly increases.

The data comes after all three major credit rating agencies cut Puerto Rico to junk-bond status and should add to worries about the U.S. territory's ability to finance itself.

Total non-farm payrolls in December averaged 922,600, a 2.6 percent decline, according to the data, while average electricity and power generated fell 4.7 percent.

A big issuer of municipal bonds, the island has been in or near recession for eight years as it suffers from a loss of U.S. federal government economic support, cuts in Puerto Rican government spending, high oil prices and population loss.

The EAI has been increasingly followed by hedge funds and others drawn to Puerto Rico debt by the lure of high interest rates. Tax-free yields on some of Puerto Rico's municipal debt, which totals some $70 billion, are as high as 10 percent.

Over the last week, Standard & Poor's, Moody's Investors Services and Fitch Ratings have all cut Puerto Rico's credit to junk. That could complicate efforts to borrow and has triggered nearly $1 billion in accelerated payments and collateral calls on various swaps agreements that markets fear could push the commonwealth closer to restructuring its debt.

The government has sought approval to issue up to $3.5 billion in new general obligation debt and said Tuesday it had hired three Wall Street banks to underwrite a forthcoming issue.

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