City of Detroit Defaulted on Part of Its Debt

Abandoned house in the Brush Park neighborhood of Detroit on March 3. REUTERS / REBECCA COOK

The city of Detroit, in the north of the United States, was forced Friday June 14 to default on part of its colossal debt of 18.5 billion dollars (13.9 billion euros) because of its great difficulties financial. In lack of liquidity, the municipality decided to impose a moratorium on payments that were due Friday and proposed a restructuring plan to certain creditors who should decide within 30 days.

The project plans to isolate 7 billion payments due by the city, including pension funds, which would no longer be fully guaranteed. If the restructuring is rejected, the city could face the biggest bankruptcy in the history of the United States.

It’s “50/50”, evaluated Kevyn Orr, an expert appointed by the governor of the State of Michigan to manage the problems of the city, former American cradle of the automobile. “Financial mismanagement, shrinking population, eroding tax base over the past forty-five years have brought Detroit to the brink of ruin”, he added to the press.

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After the announcement of the partial default, the Standard and Poor’s financial assessment agency lowered the municipality’s credit rating to “CCC-“, which corresponds to very risky bonds. However, Mr. Orr assured that the “Detroit’s road to recovery began today”.

Once the fourth most populous city in the United States, Detroit has seen its population shrink by more than half in sixty years, from 1.8 million in 1950 to 685,000 today. Racial tensions and riots that broke out during the civil rights movement in the 1960s accentuated the movement of white middle-class populations to the suburbs or out of town.

Businesses have followed suit, eroding tax revenues and forcing the reduction of certain public services. Detroit, weighed down by rampant crime, for example, is unable to provide public lighting in all of its streets.

The World with AFP