Enforcement of Puerto Rico’s Colonial Debt Pushes Out Young Workers

“Compromise” protects vulture funds, not Puerto Rico

By José A. Laguarta Ramírez | July/August 2016

This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org

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At least 23 of the 49 people killed in the mass shooting that took place at Pulse nightclub in Orlando on June 12 were born in Puerto Rico. While the horrendous hate crime targeted LGBT people of all ethnicities, the large proportion of island-born casualties is not surprising, as the central Florida city has become a preferred destination of Puerto Rican migrants over the past two decades. Steadily growing since the onset of the island’s current “fiscal” crisis in 2006, yearly out-migration from Puerto Rico now surpasses that of the 1950s. The island’s total population has begun to decline for the first time in its history.

Nearly a third of the island-born victims of the Orlando massacre were 25 or younger, most of them students employed in services or retail. This is the population group that will be hit hardest when the ironically named Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) comes into effect. Among its other “promises” for working-class Puerto Ricans, PROMESA will cut the minimum wage in Puerto Rico for those under 25, from the current federally mandated $7.25 to $4.25 per hour, and scale back the federal nutritional assistance program on the island. Purportedly aimed at “job-creation,” these measures will likely intensify the outflow of able-bodied “low-skilled” workers. Ongoing out-migration has already decimated the number of available healthcare and other professionals on the island. Puerto Rico’s 2013 median household income of $19,183 was barely half that of Mississippi, the poorest U.S. state (at $37,479), despite a cost of living that rivals that of most major cities in the United States. Inequality on the island is also greater than in any of the states.

The U.S. House of Representatives approved PROMESA on the evening of June 9, following a strong endorsement by President Barack Obama. The bill, which would also impose an unelected and unaccountable federal oversight board and allow court-supervised restructuring of part of the island’s $73 billion debt, now awaits consideration by the Senate. Its advocates hope the president can sign PROMESA into law before July 1, when $1.9 billion’s worth of Puerto Rico general obligation bonds will come due. Unlike those issued by public utility corporations and certain autonomous agencies, general obligation bonds, under Puerto Rico’s colonial constitution, must be repaid before any further public spending for the following fiscal year is authorized. Puerto Rico’s government has partially defaulted three times within the past year, but not on general obligation bonds. Puerto Rico is not the only place, under the global regime of austerity capitalism, to face predatory creditors and the imposition of unelected rulers—as illustrated by cases like Argentina, Greece, and post-industrial U.S. cities such as Flint, Mich.—but its century-old colonial status has made it particularly vulnerable and defenseless.

The House vote followed a concerted, carefully timed media push by the Democratic establishment, on the premise that “despite its flaws” PROMESA represents a bipartisan compromise that is, in Obama’s words, “far superior to the status quo.” Among similar statements, a New York Times editorial on May 31 claimed that PROMESA “offers the island its best chance of survival.” However, following the bill’s approval, Republican House Speaker Paul Ryan tweeted in almost identical terms that PROMESA is “the best chance,” but for something quite different —“for American taxpayers to be protected from a bailout of Puerto Rico.” The threat of a taxpayer-funded “bailout” (which has never been on the table) has been deployed in anonymous scare ads, probably financed by high-risk/yield-seeking “vulture funds” that hold Puerto Rican bonds and so oppose PROMESA’s mild restructuring provisions.

PROMESA’s oversight board, which will be staffed by San Juan and Washington insiders with the bondholders’ best interests at heart, is sure to continue to impose draconian austerity measures that have already slashed much-needed social services. (Former Puerto Rico governor Luis Fortuño, a Republican who enacted legislation laying off up to 30,000 public employees in order to appease credit rating agencies, has been mentioned as a likely appointee.) Democratic support for the bill was forthcoming despite the fact that neither the oversight provisions nor those reducing the minimum wage were removed.

Most U.S. observers reduce Puerto Rico’s debt crisis to a result of “mismanagement” by its local administrators. (A Google search of the terms “Puerto Rico,” “debt,” and “mismanagement” yields pieces articulating this narrative from Bloomberg, CNN, USA Today, the National Review, and the Huffington Post, among others, within the top 10 hits.) This view conveniently erases the historical and structural roots of the crisis.

U.S. troops occupied Puerto Rico in 1898 and the Supreme Court quickly declared it an “unincorporated territory” subject to the authority of the U.S. Congress and federal courts system, without voting representation in Congress. Although U.S. citizenship was extended to individuals in 1917, and a local constitution was authorized and adopted in 1952 (not without significant amendments by Congress), the juridical fact of colonialism has remained unaltered, as reiterated by the Court on the very day of the House vote on PROMESA. (See Puerto Rico v. Sánchez Valle, a criminal case on double jeopardy, in which the Court reminds Puerto Rico’s local government that unlike states, it is not legally considered a “sovereign” separate from Congress.) In the mid-1970s, Puerto Rico’s comparative advantage as the only low-wage tax haven with direct access to the U.S. market waned. Washington’s solution to the colony’s economic stagnation was Section 936 of the Internal Revenue Code, which granted federal tax exemptions to U.S. corporations on products made in Puerto Rico, in addition to local tax breaks in place since the 1940s. The local government, in turn, pursued massive debt-fueled investment in infrastructure, whose use by these corporations it heavily subsidized. The resulting debt addiction spiraled out of control in the 1990s, fed by easy credit, and exacerbated after Congress began a ten-year phase out of Section 936 in 1996. Meanwhile, profits continue to leave the island to the tune of $30 billion annually.

In international law, the term for debt incurred by colonial, corrupt, or authoritarian regimes is “odious debt.” A prominent example of its application was the cancellation of Cuba’s colonial debt when that country achieved its independence from Spain, following the so-called Spanish-American War of 1898. The U.S. government’s argument at the time, which Spain never formally accepted but most of Cuba’s creditors eventually did, was that the debt was incurred neitherwith the consent of the Cuban people nor to their benefit. Although odious debt is a grey area of international law, with sufficient political resolve Puerto Rico’s leadership could use it to bolster a claim to refuse payment. In 2008, Ecuador invoked the doctrine as part of a largely successful audit and partial default. Such a course would necessarily put Puerto Rico on a collision course with colonialism, as it would need to refuse to recognize any resulting lawsuits in U.S. courts.

This is precisely the type of outcome that PROMESA is designed to prevent. It is one which Puerto Rico’s current administrators have proven entirely unwilling to pursue. Yet it is a path that is not alien to U.S. political history: one of the grievances that led to the thirteen colonies’ Declaration of Independence was the imposition of new taxes—largely to pay debts incurred by Britain in the Seven Years’ War. An independent Puerto Rico, released of an illegitimate debt burden incurred to profit U.S. corporations, could better focus on serving the needs of its poor and working-class majority. A movement capable of leading such a process has yet to materialize, but with U.S. statehood farther away than ever and housing and labor markets in migrant destinations becoming increasingly saturated, the matter is far from decided.

As living conditions on the island continue to deteriorate under PROMESA (and they surely will), young Puerto Rican students and workers will continue to flood those places where family connections, climate, the price of airfare, and job opportunities pull them. Not all will be targeted for physical violence because of their multiple identities, as the Orlando victims were. Their fate, however, will continue to be a haunting reminder of the ways in which invisible forces pattern seemingly random events in the lives of individuals and communities.

is a scholar-activist and educator born in San Juan, Puerto Rico and trained in anthropology, law, and comparative politics. His recent doctoral dissertation from the CUNY Graduate Center explores the 2010-2011 University of Puerto Rico student strike against austerity.

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