TIME Economics

Everything You Should Know About Puerto Rico’s Economic Crisis

The island's debt is four times that of Detroit

As Greece’s debt crisis grows increasingly dire, another territory much closer to home — Puerto Rico — has admitted to some major financial woes.

What exactly is happening in Puerto Rico?

Puerto Rico Governor Alejandro García Padilla made a worrisome announcement Sunday that the island cannot pay back its $72 billion in public debt, the New York Times reports. Padilla and his staff, according to the Times, are seeking to defer debt payments for as long as five years, while also possibly seeking concessions from many of its 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.”

Okay… in English, please?

Puerto Rico is in the midst of a decades-long economic struggle fueled by years of recession and slow economic growth. As a result, its government has taken out massive loans from creditors to cover its costs.

But Puerto Rico has to pay back the money (or figure out a Plan B). In recent years, the commonwealth has raised taxes and slashed pensions in order to pay back its loans, but the island’s “tab,” so to speak, has still spiraled out of control. Many residents have found their businesses collapsing — Puerto Rico’s unemployment rate is double that of mainland America — while others have been leaving the island for better opportunities state-side.

Financial markets across the world have already been rocked by Greece’s debt crisis, and Puerto Rico’s troubles will only add to the current global economic uncertainty.

What does this mean for Americans?

If you’re an investor in municipal bond funds, Puerto Rico’s debt might be your problem, too. Municipal bonds — or loans used by local governments to fund public projects — have traditionally been considered safe investments. But some investors are worried about them — several American cities have filed for bankruptcy in recent years, and the Puerto Rico situation could make things worse. According to the Washington Post, as many as three out of four municipal bond mutual funds held Puerto Rican bonds in 2013.

How bad is the situation exactly?

Padilla called the situation a “death spiral.” And he wasn’t exaggerating: Puerto Rico’s debt is four times that of Detroit’s, and the island has more debt per capita than any American state. Analysts believe the central government will run out of cash as soon as July, according to the Wall Street Journal, which could lead to a government shutdown, emergency measures and an unpredictable crisis.

So what’s next for Puerto Rico?

Good question. While Padilla seeks to negotiate with creditors, his administration is also pushing for the right to file for bankruptcy under Chapter 9, which outlines a plan for creditors to get back some of their money. (That’s what happened with U.S. cities like Detroit, Mich., and Stockton, Calif., last year.) But under current law, that right is afforded only to U.S. cities, not to states or territories including Puerto Rico.

Read next: Everything to Know About Greece’s Economic Crisis

TIME conflict

Report: 30,000 New Refugees Flee Syrian Conflict Zones

Syrian refugees
Uygar Onder — AFP/Getty Images Syrian refugees cross the Syria-Turkey border, as they return to the northern Syrian town of Tal Abyad, on June 22, 2015.

Thousands are fleeing fighting between the Islamic State group and Syrian army in the city of Hassakeh

(BEIRUT) — A member of an international aid group says fighting between the Islamic State group and Syrian army in the northeastern city of Hassakeh has displaced at least 30,000 people.

Iraq-based Sam Duerden of International Rescue Committee says people in the city need food, water, shelter and medical assistance.

The Islamic State group attacked and captured several government-held neighborhoods of Hassakeh on Thursday. The fighting has continued since then, leaving dozens dead, according to activists.

Duerden said via Skype on Monday that many people are fleeing to nearby villages and towns, adding that there are at least 10,000 who have nowhere to go and are staying in schools or community centers.

State news agency SANA said government air strikes killed large numbers of IS fighters in Hassakeh on Monday.

TIME China

Greece Is Keeping Chinese Stocks From Rebounding

CHINA-STOCKS
STR—AFP/Getty Images

The global market sell-off came at a rough time for Chinese stocks

Uncertainty over Greece’s debt crisis battered global stocks on Monday morning, as the troubled country dealt with bank closures and placed limits on ATM withdrawals.

The global sell-off was particularly poorly timed for the Chinese stock market, which retreated into a bear market early Monday after the country’s central bank cut interest rates over the weekend in a move meant to bolster the market. China’s stock market, which fell more than 7% on Friday, started this morning moving upward before quickly reversing, leaving the market down more than 20% from highs earlier this month.

The Shanghai Composite index ended the day down 3.3%, while the Shenzhen exchange closed down more than 6% and Hong Kong’s Hang Seng dropped 2.6%.

The recent sell-off has hit several large Chinese companies particularly hard, with train maker CRRC Corporation’s stock down more than 50% from its peak price, according to The Wall Street Journal. Fellow transportation companies such as China Railway and BYD have also seen their shares drop by 45% and 40% from their respective peaks.

As Fortune‘s Scott Cendrowski noted in an earlier story, this past weekend marked the first time that China’s central bank had cut two key rates on the same day since the financial crisis. China’s leaders pushed for a stock market rally last year at a time of slow economic growth for the country, but rapid gains spooked many investors, particularly margin lenders who have led the current sell-off.

TIME Markets

Investors Are Terrified Greece’s Economy Is Falling Apart

Investors are terrified Greece is falling apart

It’s not quite panic, but it still ain’t pretty.

U.S. stocks are bracing for a bad start to the week after Greece’s debt crisis spiraled out of control at the weekend.

In pre-market trading, futures on the S&P500, the Nasdaq and the Russel 2000 are all down by 1% or more, following the lead of European markets which have taken a much harder beating as the risk of a Eurozone breakup looms afresh.

The main stock indexes in Europe fell by up to 4% across the board on opening Monday, and are down by between 2.3% and 3.9% by lunchtime (Athens’ stock market, like its banks, is shut).

On any normal day, that would be called a bloodbath in Europe, but memories of 2010 and 2012, when the Eurozone crisis peaked, are still fresh, and there seems to be a palpable sense of “well, that could have been worse.” Most markets hit their intra-day lows immediately, the main difference being the degree to which they have recovered since (Germany faring better than Italy and Spain).

True, the yields on government bonds in some of the Eurozone’s weaker countries have spiked on ‘contagion’ fears, as markets price in the risk that a Greek exit from the Eurozone would lead to a broader breakup: Italy’s 10-year yield has risen 21 basis points to 2.37%, Spain’s is up 20 basis points at 2.32%, and Portugal’s is up 31 basis points at 3.03% (a basis point is a hundredth of a percentage point).

Those are big changes, but the absolute levels are still a long way from 2012, when markets seemed on the verge of forcing all of those countries out of the Eurozone until ECB President Mario Draghi promised to do “whatever it takes” to preserve the Eurozone. Spain’s yields peaked at over 7.75%, Italy’s at over 7.5%.

Panic is still a long way away: Spain's 10-year bond yield since 2011.

“This story won’t get too out of hand unless we start to see any evidence that the Greeks are likely to vote No (at their referendum) on Sunday,” said Deutsche Bank strategist Jim Reid. “At this point the sell-off could get messy. If this doesn’t happen, the negativity may well be contained even if the story will be far from over.”

This market reaction won’t be to the liking of the Greeks, who’ll have been hoping for something stronger to underline the risks of a breakup,” said Christian Odendahl, chief economist at the Center for European Reform in London. “But it won’t be much comfort to the Europeans either, because it shows the markets are worried about what ‘Grexit’ would mean for the future of the Eurozone.”

Away from Europe, there is more nasty mood music coming from China, where the Shanghai market continued to unravel despite a cut in interest rates and reserve requirements from the central bank at the weekend. The Shanghai Composite closed down 3.3% after a 7.4% shellacking on Friday, amid reports that the army of retail punters who had driven the market up 150% since July are struggling to meet ‘margin’ calls on leveraged accounts.

Amid the carnage, investors looked for the safe haven of the dollar, as usual, but its rally early Monday has also now largely unwound. The euro is trading at $1.1118, down less than a cent from its close on Friday. Meanwhile, in the commodities markets, crude oil futures hit their lowest in three weeks on fears that financial market volatility could again hit global growth and, consequently, energy demand. By 0900 ET, they were at $58.61 a barrel, down around a dollar from late Friday.

TIME Egypt

Egypt State Prosecutor Dies After Cairo Bomb Attack

Hisham Barakat
Anadolu Agency — Getty Images Members of the Egyptian security services inspect the scene of a bombing targeting the convoy of the Egyptian Prosecutor General Hisham Barakat, in a northern suburb of Heliopolis, Cairo, on June 29, 2015.

Hisham Barakat is first top official to be assassinated since President Morsi's ouster in 2013

CAIRO (AP) — Egypt’s official news agency says the country’s state prosecutor has died of wounds sustained in a bomb attack on his convoy in a Cairo suburb.

MENA says the 65-year-old Hisham Barakat died in a Cairo hospital on Monday after undergoing a critical surgery.

He is the first top Egyptian official to be assassinated since the ouster of Islamist President Mohammed Morsi two years ago.

Hours earlier, a strong explosion had ripped through Barakat’s convoy in the busy upscale eastern suburb of Heliopolis as he was driving to his office in the downtown.

The attack came as Egyptian security forces were already on high alert on the eve of the second anniversary of massive anti-Islamist demonstrations that paved the way, days later, for the military’s ouster of Morsi.

TIME

Joseph Stiglitz to Greece’s Creditors: Abandon Austerity Or Face Global Fallout

Nobel laureate tells TIME that the institutions and countries that have enforced cost-cutting on Greece "have criminal responsibility"

A few years ago, when Greece was still at the start of its slide into an economic depression, the Nobel prize-winning economist Joseph Stiglitz remembers discussing the crisis with Greek officials. What they wanted was a stimulus package to boost growth and create jobs, and Stiglitz, who had just produced an influential report for the United Nations on how to deal with the global financial crisis, agreed that this would be the best way forward. Instead, Greece’s foreign creditors imposed a strict program of austerity. The Greek economy has shrunk by about 25% since 2010. The cost-cutting was an enormous mistake, Stiglitz says, and it’s time for the creditors to admit it.

“They have criminal responsibility,” he says of the so-called troika of financial institutions that bailed out the Greek economy in 2010, namely the International Monetary Fund, the European Commission and the European Central Bank. “It’s a kind of criminal responsibility for causing a major recession,” Stiglitz tells TIME in a phone interview.

Along with a growing number of the world’s most influential economists, Stiglitz has begun to urge the troika to forgive Greece’s debt – estimated to be worth close to $300 billion in bailouts – and to offer the stimulus money that two successive Greek governments have been requesting.

Failure to do so, Stiglitz argues, would not only worsen the recession in Greece – already deeper and more prolonged than the Great Depression in the U.S. – it would also wreck the credibility of Europe’s common currency, the euro, and put the global economy at risk of contagion.

So far Greece’s creditors have downplayed those risks. In recent years they have repeatedly insisted that European banks and global markets do not face any serious fallout from Greece abandoning the euro, as they have had plenty of time to insulate themselves from such an outcome. But Stiglitz, who served as the chief economist of the World Bank from 1997 to 2000, says no such firewall of protection can exist in a globalized economy, where the connections between events and institutions are often impossible to predict. “We don’t know all the linkings,” he says.

Many countries in Eastern Europe, for instance, are still heavily reliant on Greek banks, and if those banks collapse the European Union faces the risk of a chain reaction of financial turmoil that could easily spread to the rest of the global economy. “There is a lack of transparency in financial markets that makes it impossible to know exactly what the consequences are,” says Stiglitz. “Anybody who says they do obviously doesn’t know what they’re talking about.”

Over the weekend the prospect of Greece abandoning the euro drew closer than ever, as talks between the Greek government and its creditors broke down. Prime Minister Alexis Tsipras, who was elected in January on a promise to end austerity, announced on Saturday that he could not accept the troika’s “insulting” demands for more tax hikes and pension cuts, and he called a referendum for July 5 to let voters decide how the government should handle the negotiations going forward. If a majority of Greeks vote to reject the troika’s terms for continued assistance, Greece could be forced to default on its debt and pull out of the currency union.

Stiglitz sees two possible outcomes to that scenario – neither of them pleasant for the European Union. If the Greek economy recovers after abandoning the euro, it would “certainly increase the impetus for anti-euro politics,” encouraging other struggling economies to drop the common currency and go it alone. If the Greek economy collapses without the euro, “you have on the edge of Europe a failed state,” Stiglitz says. “That’s when the geopolitics become very ugly.”

By providing financial aid, Russia and China would then be able to undermine Greece’s allegiance to the E.U. and its foreign policy decisions, creating what Stiglitz calls “an enemy within.” There is no way to predict the long-term consequences of such a break in the E.U.’s political cohesion, but it would likely be more costly than offering Greece a break on its loans, he says.

“The creditors should admit that the policies that they put forward over the last five years are flawed,” says Stiglitz, a professor at Columbia University.What they asked for caused a deep depression with long-standing effects, and I don’t think there is any way that Europe’s and Germany’s hands are clean. My own view is that they ought to recognize their complicity and say, ‘Look, the past is the past. We made mistakes. How do we go on from here?’”

The most reasonable solution Stiglitz sees is a write-off of Greece’s debt, or at least a deal that would not require any payments for the next ten or 15 years. In that time, Greece should be given additional aid to jumpstart its economy and return to growth. But the first step would be for the troika to make a painful yet obvious admission: “Austerity hasn’t worked,” Stiglitz says.

TIME Greece

Everything to Know About Greece’s Economic Crisis

How Greece and the eurozone ended up in this mess, and where they go from here

Q. How did we get here?

A. Long story. Greece’s economy was never strong enough to share a currency with Germany’s, but both sides pretended it was, as it satisfied Greek pride and Germany’s ambitions (suffused with war guilt) of building an ‘Ever Closer Union’ in a new, democratic Europe. Reckless lending by French and German banks allowed the Greeks to finance widening budget and current account deficits for six years, but private capital flows dried up sharply after the 2008 crisis, forcing Greece to seek help from Eurozone governments and the International Monetary Fund in 2010.

Q. But all that was 5 years ago. How has Greece not managed to turn the corner since then, when every other Eurozone country that took a bailout has?

A. Greece was the first country to ask for help, and the Eurozone was totally unprepared for it on all levels–political, technological, emotional, whatever. The IMF, too, had no experience of dealing with a country in a monetary union. Consequently, the bailout was badly conceived (a point admitted at the weekend by Dominique Strauss-Kahn, who was head of the IMF at the time), focusing too much on the budget balance and not enough on fixing Greece’s uniquely dysfunctional state apparatus. In a normal recession, government spending can offset the negative effects of private demand contracting, but in this case, the budgetary austerity drove Greece into a vicious spiral. The economy contracted by 25% between 2010 and 2014, fatally weakening Greece’s ability ever to repay its debts.

Q. But didn’t Greece already get a load of debt relief?

A. Yes, €107 billion of it in a 2012 debt restructuring, the biggest in history. But it was only private creditors–i.e., bondholders–who took the hit. The Eurozone and IMF refused to write down their claims (although they did soften the repayment terms), and the new bailout agreement was based on more assumptions (since exposed as too rose-tinted) that Greece could grow itself out of its troubles. The economy continued to shrink in absolute terms and unemployment shot over 25%, forcing an ever bigger burden of taxation onto fewer and fewer shoulders. That created the political environment for this year’s crisis.

Q. You make it sound like this year is different from the previous four…

A. Victory for the radical left-wing Syriza party at elections in January completely changed the political dynamic. Previous governments had come from the political mainstream, and reluctantly played along with rules dictated in Brussels and, indirectly, Berlin. Syriza didn’t have any truck with that. It has campaigned for a 50% write-off of its debts and a relaxation of its budget targets. It has been openly confrontational and reversed key reforms made by the previous governments, despite promising the creditors in February that it wouldn’t. Syriza’s tactics–embodied by Finance Minister Yanis Varoufakis, an economics professor specializing in Game Theory–have been a gamble that the Eurozone would rather make concessions than risk the economic havoc caused by a Greek exit.

5. That gamble has failed, hasn’t it?

As of today, yes. It’s Greece, yet again, which is bearing the burden of everything: the economy had shown signs of bottoming out before Syriza came to power, with business sentiment at its highest in seven years after a very good tourist season in 2014. But the brinkmanship has destroyed confidence, and caused a sharp rise in government arrears and deposit flight, capped now by capital controls and a week-long closure of the banking system. Eurozone financial markets aren’t taking it well, but the prospect of a ‘shock and awe’ intervention by the ECB is keeping the sell-off within limits Monday morning. A real “Grexit” may yet wreak havoc on the Eurozone too, but it’s unlikely that Prime Minister Alexis Tsipras will be around that long to reap the political rewards.

Q. Aren’t the creditors to blame too?

A. For sure, there’s plenty of blame to go round. Most people now recognize that the banks that had lent to Greece pre-crisis should have been forced to take more losses in 2009/2010. Now the Eurozone has effectively swapped the private loans for public ones, any debt write-offs have enormous political costs at home. But governments in Germany and elsewhere have made a rod for their own back by being so stubborn. When Greece defaults, they’re going to lose billions anyway, and the cost of their posturing will become clear to taxpayers who have only been told half the story. They have squandered a host of opportunities to manage that loss in a more orderly way. By failing to accommodate more willing (if still inadequate) Greek governments with debt relief earlier, they prepared the ground for Syriza’s rise.

Q. What happens next?

A. Greece will miss a payment to the IMF Tuesday, and its bailout will expire the same day. The ECB seems likely to ignore the default at least until the planned referendum on Sunday, anxious to avoid responsibility for precipitating the total collapse of the financial system. The creditors are hoping the Greek government will capitulate under the pressure, and be replaced by a new ‘government of national unity’. There’s no sign of that happening yet.

Q. But how long can the current situation go on?

A. The banks are closed until July 7, after the referendum. As long as they still have the lifeline of the ECB’s emergency credit facility (over €85 billion), the banks and the government can continue to operate, albeit in a very restricted fashion. But the government is due to repay €3.5 billion in debts to the ECB on July 20, and if it can’t do that, then the ECB will have to accept that the Greek state is bankrupt, and cancel that credit line. At that point, the banks will be insolvent, and it will only be possible to restore their solvency by re-denominating the rest of their liabilities (i.e. deposits) in a new Greek currency.

Q. How, legally, does Greece leave the Eurozone?

A. Nobody knows. Like Cortes burning his boats after arriving in Mexico, the E.U. deliberately chose not to draft rules for that eventuality when it formed its currency union. There are rules for leaving the E.U., but even Syriza doesn’t want to do that. We will be, as Irish Finance Minister Michael Noonan said at the weekend, “in completely uncharted waters.”

They’ll be damned choppy waters, too.

This article was originally published in Fortune.com

TIME Puerto Rico

Puerto Rico Can’t Pay $72 Billion Debt, Governor Warns

Governor of Puerto Rico Alejandro Garcia Padilla
Ramon Tonito Zayas—GFR Media/AP Governor of Puerto Rico Alejandro Garcia Padilla in San Juan, Puerto Rico on May 12, 2015.

"I would love to have an easier option. This is not politics, this is math"

SAN JUAN, Puerto Rico (AP) — The governor is warning that Puerto Rico can’t pay its $72 billion public debt, delivering another jolt to the recession-gripped U.S. island as well as a world financial system already worrying over Greece’s collapsing finances.

Gov. Alejandro Garcia Padilla is hoping to defer debt payments while negotiating with creditors, spokesman Jesus Manuel Ortiz said Sunday night.

The comments came as legislators debate a $9.8 billion budget that calls for $674 million in cuts and sets aside $1.5 billion to help pay off the debt. The budget has to be approved by Tuesday.

Ortiz confirmed comments by Padilla that appeared in a report in The New York Times published late Sunday, less than a day before Garcia planned to meet with legislators and then go on television to deliver a public address.

“There is no other option. I would love to have an easier option. This is not politics, this is math,” Garcia is quoted as saying in the Times.

Puerto Rico’s bonds were popular with U.S. mutual funds because they were tax-free, but hedge funds and distressed-debt buyers began stepping in to buy up debt as the island’s economy worsened and its credit rating dropped.

Some legislators were taken aback by Garcia’s comments, including Rep. Jenniffer Gonzalez, spokeswoman for the main opposition party.

“I think it’s irresponsible,” Gonzalez said. “He met privately with The New York Times last week, but he hasn’t met with the leaders of this island.”

Puerto Rico’s constitution dictates that the debt has to be paid before any other financial obligation is met. If Garcia seeks to not pay the debt at all, it will require a referendum and a vote on a constitutional amendment, she said in a phone interview.

Puerto Rico’s situation has drawn comparisons to Greece, where the government decreed this weekend that banks would be shuttered for six business days and restrictions imposed on cash withdrawals. The country’s five-year financial crisis has sparked questions about its continued membership in the 19-nation shared euro currency and the European Union.

Puerto Rico’s governor recently confirmed that he had considered having his government seek permission from the U.S. Congress to declare bankruptcy amid a nearly decade-long economic slump. His administration is currently pushing for the right for Puerto Rico’s public agencies to file for bankruptcy under Chapter 9. Neither the agencies nor the island’s government can file for bankruptcy under current U.S. rules.

Puerto Rico’s public agencies owe a large portion of the debt, with the power company alone owing some $9 billion. The company is facing a restructuring as the government continues to negotiate with creditors as the deadline for a roughly $400 million payment nears.

Garcia has taken several measures to help generate more government revenue, including signing legislation raising the sales tax to 11.5 percent and creating a 4 percent tax on professional services. The sales tax increase goes into effect Wednesday and the new services tax on Oct. 1, to be followed by a transition to a value-added tax by April 1.

TIME Middle East

Israeli Navy Intercepts ‘Freedom Flotilla’ Bound for Gaza

Israel Gaza Boat
Majdi Fathi—NurPhoto/Corbis Palestinians wave their national flag as they ride boats during a rally in support of activists aboard a Pro-Gaza flotilla made up of four boats aimed at defying Israel's blockade of Gaza, at the seaport of Gaza City on June 28, 2015.

The "Freedom Flotilla" was boarded without force

JERUSALEM (AP) — Israel’s navy intercepted a Swedish vessel attempting to breach a naval blockade of Gaza early Monday and was redirecting it to an Israeli port, the military and the activists said.

The military said that after exhausting all diplomatic efforts, the government ordered it to block the vessel. Israeli naval forces boarded the Marianne ship and searched it in international waters without needing to use any force, the military said.

The ship was carrying about 20 activists, including Israeli Arab lawmaker Basel Ghattas and former Tunisian President Moncef Marzouki. Three other ships that were part of the original flotilla reversed course before encountering the Israeli navy.

The Freedom Flotilla group posted a photo on Twitter apparently showing a group of its activists onboard a ship. It said in the post that Israeli forces intercepted the Marianne and it was currently en route to Ashdod port. The ship was expected to arrive in Ashdod in 12 to 24 hours.

Petros Stergiou, a member of flotilla’s media team in Athens, said the group would continue its acts of protest until the blockade of Gaza was lifted.

“Once again, the Israeli state commits an act of state piracy in the Mediterranean Sea,” he said. “The government continues this policy of non-tolerance, which means that it will continue to enforce the collective punishment against the 1.8 million people in Gaza.”

A 2010 Israeli raid against a Gaza-bound flotilla left nine Turkish pro-Palestinian activists dead. It sparked international criticism of Israel and delivered a serious blow to its previously close ties with Turkey.

Israel has maintained a blockade of Gaza since Hamas militants took power in 2007. Islamic militants in the coastal strip have fired thousands of rockets toward Israel and have repeatedly tried to smuggle in arms through the sea.

While Israel insists there is no siege, there are severe restrictions on Palestinian movement and trade, with virtually no exports. The international community, including the United Nations, has repeatedly called for an end to the blockade.

Prime Minister Benjamin Netanyahu said the naval blockade of Gaza is in accordance with international law and has been endorsed by a United Nations committee.

“This flotilla is nothing but a demonstration of hypocrisy and lies that is only assisting the Hamas terrorist organization and ignores all of the horrors in our region,” he said. “We are not prepared to accept the entry of war material to the terrorist organizations in Gaza as has been done by sea in the past.”

Israel says it transfers about 800 trucks a day into Gaza and recently brought in more than 1.6 million tons of goods. It says it assists in hundreds of humanitarian projects, through international organizations, including the building of clinics and hospitals.

TIME Taiwan

Cigarettes or Spark Suspected in Taiwan Fire That Burned 500

Taiwan Fire
AP—AP Police investigators inspect the stage area after an accidental explosion during a music concert at the Formosa Water Park in New Taipei City, Taiwan, June 28, 2015

"It's still not clear what happened, but there were a number of people smoking."

(TAIPEI, Taiwan) — Investigators in Taiwan were focusing Monday on the possibility that a cigarette butt or spark caused the blaze that burned more than 500 people at a weekend water park party when colored powder sprayed from the stage caught fire.

More than 400 people remained hospitalized, 200 in serious condition, city officials said. Taiwan’s Central News Agency reported one death: a 20-year-old with burns to 90 percent of her body who was taken off life support with her family’s consent.

Police recommended criminal charges against the organizer of Saturday’s party, as well as two technicians, at the Formosa Fun Coast theme park in suburban Taipei.

“It’s still not clear what happened, but there were a number of people smoking and the weather was warm,” New Taipei City news department head Lin Chieh-yu said. Temperatures around greater Taipei topped 36 degrees Celsius (96.8F) before the party.

The three tons of colored starch-based powder bought by the organizers from Tai Won, a seller in the island’s southern county of Yunlin, were flammable, said Chou Hui-fang, a representative of the seller. She said the buyer was informed about the risk of fire.

“Whether it’s corn starch or flour starch, this kind of stuff, no matter how long it’s been around, if it’s in dense quantities and if it’s hot, it can catch fire,” Chou said. She said her 4-year-old company has been questioned by police and health officials but was not considered at fault.

“We didn’t know what the buyers were going to do with it or how much they would use,” she said. “It might have been supplies for a whole year.”

Taiwan Premier Mao Chi-kuo on Sunday banned use of the powder at future private events. Colored powder is often thrown on revelers during the annual Holi celebrations in India and Nepal, a Hindu festival. The powder at Saturday’s party was made in Taiwan, Chou said.

The water park was ordered to close after the fire.

Taiwan police recommended charges of professional neglect and public endangerment for party organizer Lu Chung-chi, who was arrested but released on bail of 1 million Taiwan dollars (US$32,000) bail and restricted from leaving the island, a New Taipei City police spokesman said.

Local media photos showed Lu kneeling on the ground to apologize, pledging to take full responsibility.

Police also recommended charges for the stage hardware technician and the person responsible for shooting off the powder. Each was given bail of 300,000 Taiwan dollars. Officers questioned another two involved in the event but did not recommend charges, said Yan Bo-jen, news liaison with the Luzhou Precinct of New Taipei City Police Department.

Prosecutors have also seized the assets of the water park and of the party organizers, the city news official said.

The powder ignited along the ground, mainly burning people’s lower bodies, said Wang Wei-sheng, a liaison with the New Taipei City fire department command center.

Taiwan university student Liang Sheng-kai said flaming powder hit his legs, apparently catching fire after it was sprayed from a concert stage into the front row where he was standing.

With the park’s water features several hundred meters (yards) away, too far to douse the fire or ease burns, people screamed and panicked to find exits as balls of fire surged from the ground, he said. He said the right and left sides of the stage were blocked.

“It was very messy and a lot of people fell over or got knocked down,” said Liang, 20, who is staying in a Taipei hospital for burn treatment.

Four victims were from Hong Kong, two from mainland China and one each from Japan, Malaysia, Singapore, a New Taipei City news official said. Authorities are still checking on the nationalities of three other foreigners. More than 200 were students, Central News Agency said.

A total of 519 people were injured by the fire, according to a statement from the city government’s health bureau.

___

AP writer Louise Watt in Beijing contributed to this report.

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