A Beleaguered Wal-Mart Sues A Broke Puerto Rico For “Astonishing” Tax Hike

It’s always amusing when unforeseen circumstances conspire to bring two previously disparate stories together in one hilarious boondoggle. 

As regular readers are no doubt aware, Puerto Rico is broke. “Let us be clear: We have no cash left,” governor Alejandro Garcia Padilla told Congress last week, after the commonwealth used an absurd revenue clawback end-around to avoid defaulting on some $345 million in debt that came due on Tuesday. 

The island owes another $300 million on January 1st and what might this week’s payment so important was that of the $354 million coming due, around $273 million was GO debt, and defaulting on that would mean a cascade of ugly litigation. 

Of course the use of the clawback – which effectively allows the island to divert revenue earmarked for other bonds to GO debt repayments – is a bit like Greece tapping its IMF reserves to pay the IMF. That is, there’s a palpable sense of desperation here and the situation is going to get immeasurably worse without some manner of federal intervention. 

Ok, so that’s Puerto Rico. 

Regular readers are also no doubt aware that Wal-Mart (WMT) has gotten itself into trouble this year after bowing to calls for increased wages for its lowest-paid employees. Those wage hikes (which are set to cost the retailer around $1.5 billion over two years) pinched margins, prompting the company to tighten the screws on suppliers with a series of measures that culminated in Wal-Mart demanding that its vendors pass on any savings they might have derived from the yuan deval. 

The company also learned that when you hike wages for some employees but not others, the wage hierarchy gets thrown out of whack prompting workers higher up the ladder to either quit, or demand more money to restore the compensation pecking order. 

Unable to cope and unable to squeeze anything else out of the supply chain without triggering a veritable vendor mutiny, Wal-Mart was forced to cut hours and then, to cut jobs at the Bentonville office.