Last Thursday, July 18, Detroit officials filed for bankruptcy in this city. Not being an isolated case in the United States of America (seven other cities had already submitted this request in the past and, during the 70s of the last century, New York and Cleveland were also on the verge of financial collapse), the case Detroit stands out from the rest, as this bankruptcy has become the largest in this country in the public sector.
The debt in question amounts to approximately 14 billion euros (18,5 billion dollars), in a city with a population of 715 inhabitants and 360 km2 (the Algarve has 450 inhabitants and an area of 5.400 km2; the municipalities Portuguese companies, as a whole, have an estimated debt of 12 billion euros).
This is the culmination of the history of the city that, in the 60s, was the richest in the whole country (income per capita highest in the US) and was the birthplace of the modern automobile industry.
It was in Detroit that Henry Ford started the production of his Model T and that sparked the North American automobile industry, one of the economic engines that catapulted the United States into the world's largest economy (a status that it still preserves today).
At the height of this period, Detroit had 1,8 million inhabitants, double its current record.
However, today's panorama is very different. 60% of children live in poverty, 15% of the population is illiterate and has an unemployment rate of 18%.
At the level of the housing stock, there are more than 78 thousand empty buildings, 40% of the public lighting does not work, more than half of the public parks have been progressively closed since 2008 and the waiting time for the presence of the police is around 58 minutes .
The causes associated with this event have been widely discussed by medium locations. Among them, the following stand out: an extensive network of infrastructure, with extremely high maintenance costs, a poorly managed pension and health system, the contracting of successive loans to face the growing municipal debt or the inefficiency of public services, with notable deficiencies in the archives, with obsolete computer material.
Another widely discussed cause is NAFTA - North American Free Trade Agreement – agreement signed in 1994 that led to the entry of the American economy into the free market.
However, studies indicate that this agreement resulted in the loss of 682.900 jobs across the country, concentrated in the secondary sector (industries), while the state of Michigan (Detroit is the largest city in this state) lost about 50% of its jobs of work in the industry.
One of the figures who defended NAFTA, Paul Krugman (and who regularly speaks out on the Sovereign Debt Crisis of European Peripheral Countries), has been openly criticized for the positions taken at the time.
In 2009, twice, the Obama Administration provided financial support to the local car industry, specifically to Chrysler and the giant General Motors (which includes brands such as Hummer or Opel).
In total, more than 60 billion dollars were injected, money that, at the end of 2012, was concluded to be partially unrecoverable.
Now, Obama has decided not to go to Detroit, leaving the city to face a recovery plan similar to the bailouts that Portugal, Greece and Ireland ratified.
What are the consequences of this bankruptcy filing? Negotiations are ongoing and there are several proposals on the table: agreements with creditors (there is talk of a reduction of 10 cents for every dollar in debt), reduction of pensions, rationalization of public spending. No one is quite sure how this process will end, but it is unanimously acknowledged that the worst is yet to come.
It will be of great interest to follow this process in the coming months, both for the direct impacts and for the comparison that can be made with the rescue that the Troika starred in Portugal.
Author João Rodrigues is a Landscape Architect
Comments