The Puerto Rican government recently defaulted on a 400 dollar million debt payment. Another 2 billion dollars default is expected on July 1st if Congress does not take action. In all, Puerto Rico owes its lenders more than 70 billion dollars that it cannot pay.
Despite its status as a Commonwealth, Puerto Rico is a territory of the United States and its powers to take action on its own are limited. In fact, Puerto Rico cannot restructure its debt under bankruptcy laws, because Congress arbitrarily eliminated such protection in 1984.
A colonial relationship lies at the root of Puerto Rico’s economic problems. In 1996, Congress phased out tax incentives to attract US industries that had been in place since the 1950s. Without them, given the costs of doing business in an island economy, economic growth has been difficult. In addition, the Puerto Rican debt is owned by hedge funds that oppose interventions on behalf of the island, because this might reduce their expected profits.
Thousands of government employees have been laid off, contributing to an unemployment rate of 12 percent, four times the rate in Vermont. More than one hundred and fifty schools have recently closed and private hospitals are eliminating services, increasing the pressure on public hospitals already strapped for personnel, medicines and decent facilities.
Most disheartening is the massive migration of young professionals to the United States, who can easily relocate given their citizen status. Eighty-thousand Puerto Ricans left the Island last year.
Puerto Rico’s financial difficulties have been in the making for at least a decade. Yet, the White House and Congress have been slow to take action and proposals to create a federal board to oversee tough fiscal measures without a recovery plan in place are not favored by Puerto Ricans. This would be regarded as new colonial action instead of a helpful way to restructure the debt.
Meanwhile, 3.5 million Puerto Ricans – American citizens all – suffer. And the question of how long our brothers and sisters just a hundred miles away from our shores may have to wait for relief remains unanswered.