Puerto Rico is neither a nation nor a state: it is a colony where 3.5m American citizens without federal representation languish while local politicians prefer to debate the island’s political status – whether we should be a commonwealth, a state or an independent country – rather than address a starker reality: the island is poor, its population is ageing and its young people are leaving.
And now those poor, ageing people are going to be asked to pay off an enormous debt incurred by their political leaders too lazy or too incompetent to have made forward-thinking political decisions for more than a generation.
For local politicians to directly blame the island’s $72bn “unpayable” – and yet coming-due – debt solely on US economic policy is not a good enough explanation: every colonial master needs an accomplice, and Puerto Rico’s political class has served their masters well.
Jay Fonseca, a noted Puerto Rican political commentator, posted a chart from Carribean Business which shows that from 1949-2014 – the period during which Puerto Rico was afforded a measure of self-rule through their governors – the island’s accumulated debt grew from $910m to $78bn. (It’s now slightly greater than the island’s total GNP.)
Spending and borrowing were always part of the island’s political culture, and Wall Street banks were always more than happy to lend. But having borrowed too much for decades, having spent just as much, having American companies leave after tax incentives expired in 2006, getting hit by the Great Recession and still borrowing more money from Wall Street, no one should be surprised that Puerto Rico is teetering on the brink of financial ruin and draconian austerity measures.
Wall Street firms have already made $1.4bn in fees off of the 86 bond deals Puerto Rico executed to avoid tackling its massive debt problems between 2006 and 2013; firms continued to lend Puerto Rico money despite the risks of a default precisely for the massive profits. But how do you think these firms got the access to sell Puerto Rico a bad deal in the first place? The island’s political class.
Earlier this month, a lawsuit by the island’s Centro de Periodismo Investigativo revealed that more than 30 hedge funds are now involved in the island’s debt restructuring. And, if you think loan sharking is unjust, hedge funds are just legalized loan sharking: Puerto Rico could conceivably get the money it needs to pay off this set of debts, but the fees it will need to pay and the ownership interest in the government’s resources that Puerto Ricans will have to give up will keep the island dependent on hedge fund managers for decades to come. But hedge fund managers have no interest in solving Puerto Rico’s social problems; they simply have an interest in making money – a lot of money – off of them. These are the people the island’s political class has brought it to “rescue” Puerto Rico.
The island’s political leaders are fully aware that getting the money from hedge funds rather than reform will simply further mortgage the island’s future – as are the former politicians now in the private sector – but they don’t want the rest of the world to know from where the money is coming. This modicum of transparency would lead to demands for more transparency and honesty, traits rarely seen in the politics on the Isle of Enchantment.