Latin America

Puerto Rico: Debt, Crisis and Colonialism

On July 1, Obama passed the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) and the Puerto Rican government virtually defaulted on the nearly $2 billion in bond payments due the same day.

September 06, 2016

In yet another demonstration of imperialist hypocrisy, Obama presented PROMESA as the only option to prevent chaotic default and humanitarian crisis on the island, when the true objective was to protect bondholder interests. Washington has thus created an oversight board (junta) with sweeping power over local government and finances, to achieve a “balanced budget” and to “restructure public finances.” The junta will oversee plans guaranteeing payments to bondholders, including rescheduling some and ignoring lawsuits temporarily. This will all result in a virtual financial dictatorship at the service of Wall Street creditors, deepening impoverishment and oppression of the Puerto Rican working class and people.

It has been said that the crisis would turn Puerto Rico into the “Caribbean’s Greece,” and indeed, the PROMESA austerity plan is comparable to the Memorandum of Understanding that the EU imposed on their small mediterranean partner; outcome of PROMESA will be just as horrible for Puerto Rico as the MOU was for Greece.

Puerto Rico has suspended debt payments for a few months, during which the junta will develop a new schedule of payments and design an austerity plan. Among the measures being put into place are more flexible labor laws and lower minimum wage—an attack on workers under 25 years of age. Other measures include layoffs of government employees, water and electricity fee hikes, cuts to healthcare and education, and privatization in the public sector.

Both Governor Garcia Padilla and opposition leader Pedro Pierluisi support PROMESA despite widespread rejection by Puerto Ricans and strong criticism from local media. They were even forced to publicly admit that the bill “isn’t perfect.” What else could be expected from politicians who are accomplices to Puerto Rico’s indebtedness and continuing colonization?

The island bourgeoisie, represented by the New Progressive Party (PNP) and the Popular Democratic Party (PDP), also has its share of debt bonds and looks to benefit from the crisis.

The PROMESA bill at work

Imperialism responded to the crisis with PROMESA, a bill negotiated in Congress establishing a financial oversight board to reschedule Puerto Rican debt payments and guarantee payments to creditors: mostly pension funds and US vulture funds. The seven members will be appointed by Obama based on a list drawn by Congress. In accordance with a bipartisan agreement, four of the members will be Republicans.

There is also a Task Force with eight congressional members—half republican and half democrats—whose tasks will be to prepare a report analyzing the “impediments to growth...stemming from federal laws and programs” and to propose “recommendations to remove current barriers to growth.” In other words, their objective is to propose reforms to the legal system that will make Puerto Rico a friendlier destination for corporations in search of cheap labor.

The Republicans that make up the congressional Task force are Sean Duffy (Wisconsin), Tom MacArthur (New Jersey), Orrin Hatch (Utah) and Marco Rubio (Florida). Currently Florida Senator and former presidential candidate, Rubio is the son of Cuban immigrants and hails from the most conservative sector of the party. The Task Force Democrats are Robert Menéndez (New Jersey), Bill Nelson (Florida), Nydia Velázquez (New York)—three states with the greatest concentration of Puerto Rican immigrants—as well as Puerto Rico Resident Commissioner Pedro Pierluisi.

An unpayable debt

A monumental debt of almost $73 billion is suffocating Puerto Rico. It was about $20 billion at beginning of the century, but has increased at an astonishing rate over the last decade. In June of 2008, the debt was about $53 billion; last March, it reached $72 billion.

The Puerto Rican economy has been in decline since 2006, when the federal government ended tax breaks and other incentives for corporations located in Puerto Rico. Thus, In the midst of an economic downturn, Puerto Rico released municipal bonds in order to ease the decline in revenue. As a result, the economic recession brought an increase in emigration and fiscal hardships. The San Juan government, public companies (electricity, water, ports, etc.) and the municipalities resorted to issuing large sums of bonds. At the same time, tax exemptions for those investing in these bonds as well as high interest rates attracted investors from the United States. The speculative celebration of the Puerto Rican bonds lasted a few years, but when it became clear that the payment of the debt was becoming increasingly more difficult, it took a dramatic drop. Thus, an important portion of the bonds was purchased at “junk bond”prices by vulture funds who were waiting for the opportunity to cash in on the earnings at the expense of the island. At the same time, one-fourth of the bondholders are in the hands of local investors, which generates a strong interest group pushing for the debt to be paid no matter what it takes.

Since August 2015, the government of San Juan could no longer guarantee keeping up with the debt payments. Although it gave priority to the bondholders in the United States over those in Puerto Rico, it seemed inevitable that they were going to default. Even the highest-ranking financial authority, Secretary of Treasury Jacob J. Lew, recognized that the only way to keep Puerto Rico from faulting on the payments (detrimental for investors) would be some form of restructuring, along with a bailout.

However, the colonial law that Puerto Rico is subjected to is so restrictive that they are forbidden from filing chapter 9 bankruptcy, a law that citizens and cities like Detroit, are permitted to use. Puerto Rico is also forbidden from taking loans from international institutions.

The discussion taking place in Washington centers on two issues: an exist strategy that can keep the crisis from ending in an uncontrollable default and a strategic plan to reorganize the island, making it attractive once again to corporations and investors.

The colonial state, exposed

One of the first results of PROMESA has been to expose the colonial status of the Free Associated State (FAS). The crude reality of the relationship imposed by the United States and the humiliating subordination of the local authorities will likely lead to a greater political and ideological crisis.

Since the war with Spain in 1898, Puerto Rico has belonged to the United States but is not part of it, like other island possessions in the world. According to the US government, these islands are considered colonies that are “unincorporated territories”: North Mariana Islands, Guam, Midway, Wake, and others in the Pacific as well as the Virgin Islands, Navassa, Guantanamo Bay and Puerto Rico in the Caribbean. Puerto Rico is the largest in size and population among them. In 1952, with the Free Associated State (FAS) statue a neocolonial formula was established to allow for more local autonomy (like the election of a Governor and creation of their own laws) while leaving Puerto Rico under the guidance of Washington. More specifically, US Congress can suspend the Puerto Rican Constitution and veto any law written by the local government and prevent Puerto Rico from establishing international relations or its own military. They can also enforce restrictions on commerce, finance and transportation, making it possible for the US to engage in coastal trade while keeping out other countries.

The real nature of the FAS is clear: colonization of Puerto Rico through expropriation of the most fundamental elements of a sovereign state, instead in the hands of Congress. This neocolonial relationship is unjustifiable; even the United Nations, through a special Decolonization Committee, has announced several times (the most recent being this past May) that the United States should review the situation.

A plan to redesign Puerto Rico

The economic and social crisis is already dire. During the “lost decade” from 2006 to 2016, the economy shrank while Puerto Rico became increasingly more indebted. Investment fell from 20.5 percent in 2006 to the current 12.5 percent. Emigration to the United States (“stateside”) multiplied, particularly among youth, and unemployment rose to over 12 percent. Education, healthcare, public transportation and other services are being completely neglected. In addition, there was a severe drought last year, and there is a threat of a Zika epidemic that could reach devastating proportions. Despite local opposition, the authorities in the United States are proposing the fumigation of the island with Naled instead of other health-conscious solutions to combat Zika. It’s clear that Washington is not interested in the health of the Puerto Rican people, but solely focused on keeping the virus from spreading stateside.

The dramatic increase in public debt in the last decade was not only a great business deal for the financial speculation market, but it also expressed a deeper structural crisis for Puerto Rican capitalism, revealing the failure of the neocolonial economic “model.” Without any kind of federal economic incentives, the companies that had taken root in Puerto Rico (like the big pharmaceutical companies) in the 60s and 70s began to pull out. Today Puerto Rico, a worn-out appendage of the US economy, cannot compete with cheap labor in Mexico or China. This is combined with the loss of Puerto Rico’s geopolitical and military importance ever since the “opening” of relations with Cuba and the reestablishment of ties in Latin America.

A political way forward for Puerto Rico

The colonial and undemocratic way in which the problems in Puerto Rico are discussed and resolved—with decisions that will affect the lives of an entire country and generations to come—by a handful of politicians and bankers in Washington and New York is scandalous. Puerto Rican representatives don’t have a say and people from the island are completely excluded from all steps in the decision-making process. The Puerto Ricans’ political rights and the so-called “United States citizenships” reveal their limits, useless at the onset of a crisis that the US is trying to resolve behind closed doors. The political and ideological crises that have manifested in this situation brings about the question of alternatives for the Puerto Rican people.

The politics of the current Puerto Rican authorities (PDP) to negotiate a FAS with a higher grade of autonomy would allow Puerto Rico to trade, build debt with countries outside of the US, and create a broader market for selling cheap labor. In other words, it would be nothing more than an “update” to the current colonial situation. This is the direction that the majority of the “establishment” in Washington appear to be leaning.

The assimilationist stance of the PNP is to mak Puerto Rico the 51st state in the Union, which would still fail to give it the same footing as other states and would not end Puerto Ricans’ status as “second-class citizens.” Stateship would instead result in a kind of internal colony and ignore the people’s historic demand to become an independent nation. Puerto Ricans would continue to be oppressed and discriminated against economically, socially, politically, and culturally. In addition, in the midst of an increase in tendencies that are reactionary, xenophobic, and racist, mostly against Blacks and Latinos, it doesn’t appear to be in the US bourgeoisie’s interest to incorporate Puerto Rico as a state.

Bernie Sanders strongly criticized the bondholders. He called it a “disaster for the people of Puerto Rico,” adding, “This legislation takes away their democratic rights and self-governance and will impose harsh austerity measures, which will make the poorest people in Puerto Rico even poorer.”

However, his critical discourse is bound by the limits of federal institutions and laws. His official platform states, “Bernie will fight for a US congressionally-sanctioned and binding referendum where the Puerto Rican people would be able to decide on whether to become a state, an independent country, or to reform the current Commonwealth agreement. This is an issue that should be decided by the Puerto Rican people.”

Also, in response to dealing with the debt in Puerto Rico Sanders’ platform reads, “[Fight] to give Puerto Rico the same Chapter 9 bankruptcy protections that exist for municipalities in the United States. Puerto Rico should be able to restructure its debt in a rational and organized way that protects its people without harming ordinary investors and pension funds in the United States. [Audit] Puerto Rico’s debt to investigate whether it was incurred legally. If any debt was issued to creditors in violation of Puerto Rico’s Constitution, it must be immediately set aside.” In the end, Sanders accepts and supports PROMESA as well as a policy of compromise with the creditors.

A strategy for the Puerto Rican people

But nothing good for the Puerto Rican people can come out of PROMESA, the junta and the negotiations and agreements with Washington and their politicians.

The most fundamental democratic right is the power to debate and resolve issues through elected representatives without the intervention of the US in a free and sovereign Constituent Assembly, where key issues are discussed (ie., refusal to pay the debt to independence and how to organize the country according to the interests of the working class). Such an assembly would mean challenging the neocolonial statute and could only be achieved through the mass mobilization of the working class and poor. Through such a struggle, it would become more clear that only the workers and poor can lead Puerto Rico out of the profound crisis.

For socialists, a true independence (that is not a situation of semicolonial submission and pillaging, like the countries in Central America and the Caribbean) can only be won through mass mobilization led by the working class, since nothing can be expected from the parasitic bourgeoisie bought by US capital. Such a movement must demand a program that is rooted in the refusal to pay the debt, the expropriation of the banks and big businesses and, at minimum, compensation for over a decade of colonial oppression and lotting. Through the power of the workers and poor connected to the struggles taking place throughout the entire continent, the movement can work towards a socialist republic federation of Latin America and the Caribbean.

Since the beginning of the month, more people have been raising their voices in discontent and more protests have taken place on the island. In San Juan, hundreds of protesters have been organizing actions against the junta in the form of music festivals, art in the streets as well as other actions. At these events, protesters have made it clear that they are against paying the debt, against the junta and against the colonial situation that Puerto Rico has been subjected to throughout the years. The public electric company union declared a 24-hour strike. They’re pushing forward with the task of organizing and expanding the resistance movement.

The situation has raised the need for the mobilization of workers, youth and poor against the junta, against the payment of the debt and against the colonial FAS, for complete self-determination of the Puerto Rican people—in other words, national independence. This struggle overlaps with the anti-capitalist and anti-imperialist struggle in Latin America and the United States; in a way, Puerto Rico is a “bridge” or “link” between both. The problem lies in connecting the struggles of the workers, youth and oppressed in the United States (which includes 4 million Puerto Rican immigrants) to the movement of the workers and poor on the island. It would mean taking steps towards unifying the continent, in solidarity with the Puerto Rican people, to fight against the “1%,” the billionaires, corporations and their imperialist State.




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debt   /    Puerto Rico   /    Latin America