Suffering and misery: Puerto Rico in a debt crisis

NEW YORK — The economic crisis generated by the unpayable debt of the Commonwealth of Puerto Rico has consequences similar to those suffered by other countries that battle against the international financial powers, with draconian prescriptions of austerity that fall upon the poor majorities, for the benefit of the world’s richest interests.

Early last month, Governor Alejandro García Padilla outlined his proposal to deal with the crisis posed by a $72 billion debt, which earlier in the year he described as unpayable.

When Puerto Rico failed to pay its debt, the first time in more than a century as a colony, it exceeded the largest municipal default in U.S. history.

Unlike other nations in crisis, however, Puerto Rico has two particular aspects: it is a country without national sovereignty and its inhabitants can directly affect U.S politics, to the point that it can be a determining factor in presidential elections.

Puerto Rico has been a U.S. possession for 117 years. The big debate over whether it should be an independent country or another star in the U.S. flag (i.e., a state) has not been settled, despite heroic battles and movements waged by famous independence activists who have given their lives or become political prisoners of the United States.

A strategic position

Although Puerto Rico elects its governor and other local officials, who rule over the daily issues, every basic decision — political, fiscal, commercial and welfare-related — has to go through Washington, where the colony is represented by just one federal delegate who has a voice but no vote in Congress.

Therefore, unlike Greece, it does not have the power to define its destiny by the decision of its people.

At the same time, its inhabitants do have rights as citizens of the United States, including the right to vote in general elections.

The growing crisis has caused the migration of hundreds of thousands of Puerto Ricans to the United States. But the refugees from this crisis have something that other migrants don’t: voice and vote in the general elections of the United States.

Given that most have settled in Florida, they find themselves in the midst of one of the two key states in the national electoral map of the U.S.

Both the Puerto Rican vote and its diaspora are part of the reason why the small island catches the attention of national politicians, including presidential candidates such as Hillary Clinton, Bernie Sanders and Marco Rubio.

Because of all this, the struggle over Puerto Rico’s economic crisis has implications for the island, Washington and Wall Street.

As always in these cases, the crisis is the result of the years-long accumulation of debt (mostly bonds) to solve growing deficits provoked by deteriorating economic conditions, flight of investments, and competition (lower wages, fiscal incentives) from other countries in the Caribbean Basin — all this aggravated by the 2006 recession.

In fact, the island’s debt grew 64 percent since 2006. The bonds were very attractive for investors because they are exempt from every kind of tax.

The governor’s proposal — the Puerto Rico Fiscal and Economic Growth Plan — focuses on ways to alleviate the debt and make a drastic cutback in public expenditure. It has two central elements: to establish a financial-control board with broad powers over the budget, and to restructure the debt (almost $72 billion) aside from promoting the so-called structural reforms.

Because of a peculiar amendment to a federal law 30 years ago, Puerto Rico, unlike other U.S. public entities (states, municipalities, public enterprises), does not have the recourse of a legal bankruptcy, which obligates all creditors to accept a restructuring of the debt. Therefore, many argue that Congress’ first step is to grant the island that legal recourse.

Without that, argues Pedro Pierluisi, Puerto Rico’s delegate in Congress, and other experts who have presented the argument in opinion articles in The New York Times and other newspapers, there is no lasting solution.

However, with the ever complicated and supposedly elegant logic of this type of argument, these proposals (and for the moment there are no others) imply what almost all Latin American countries know well: a severe austerity for all the majorities, while the wealthiest people and the large corporations emerge almost unscathed.

Social groups and opposition politicians have expressed their serious concern that the cost of the crisis will not be shared and that the workers and the poor will end up paying the bill.

So far, the “vulture funds” are not willing to restructure. Those specialists in the so-called market of distressed securities, investors who profit from crises (such as the ones in Greece and Argentina) are demanding full payment for their credit.

In fact, a report by three former economists of the International Monetary Fund written for 34 hedge funds concluded that the island had overspent on education and is proposing that Puerto Rico — a country with almost two thirds of its children in poverty — fires more teachers and shutters more schools to pay what it owes speculative investors, The Guardian reported. The island has already shut down almost 100 schools.

These financiers and their rich clients wish to continue to enjoy an island that serves as a tax haven for foreign investors and transnational corporations, and provides all kinds of subsidies.

Speculative bankers demand the closing of public schools so they can be paid, while the U.S. financial sector does not conceal its demands for more austerity, including brutal cutbacks in public spending and the privatization of public services.

Some propose that Washington assume total control of the island’s financial affairs, something that the Obama administration and others are reluctant to do.

Juan González, a veteran Puerto Rican journalist based in New York City, a columnist for The Daily News and co-host of the news program Democracy Now, says that people must understand something very simple: “Puerto Rico’s problem is that, for 117 years, all the major decisions about the island have been made by the U.S. Congress, not by Puerto Rico’s elected politicians.”

Puerto Rico, he says, “is a colony of the United States.”

[Translation by German Piniella. Progreso Weekly]

(From La Jornada)