By David Cruz
Puerto Rico most Americans know is all sunshine and beaches and old world charm. But festering under the pastel beauty of this island paradise is a fiscal crisis that is about to come to a head as the island defaults this week on the first $400 million of more than $70 billion worth of debt, much of it to U.S. hedge funds, which have financed the sale of debt that has propped up the island’s government.
“This a crisis of American proportions that can only be addressed by this federal government,” said Juan Cartagena, the president and general counsel of Latino Justice, of the Puerto Rican Legal Defense and Education Fund, at a recent panel discussion on the crisis.
Cartagena dove into the origins of the crisis as a way to begin to rally civic engagement around it. He recounted the island’s colonial history, a territory of the United States since 1898, whose inhabitants became U.S. citizens in 1917, but whose economic fortunes have been tied to arcane U.S. laws that today make it impossible for the island to file for bankruptcy in order to restructure its debt and require the island to pay creditors before even funding its schools.
“To pay creditors now means they’ll have no money left for the most basic of governmental services,” he said. “Already the debt service of $72 billion represents 35 to 40 percent of its annual revenue budget.”
There’s plenty of blame to go around here. Congress has made it consequence-free for hedge funds to lend the money — their investments are tax-free. And the Puerto Rican government has been free-spending and scandal-marred. And, now Congress, which helped to make the mess, has — so far — refused to allow the island government to clean it up. A bill that would give Puerto Rico the right to file for bankruptcy protection has stalled.
“Congress needs to approve the pending debt restructuring legislation I introduced with Senate colleagues that would allow Puerto Rico to allow its public utilities to rework their debts under Chapter 9,” said Sen. Bob Menendez on the Senate floor. “That is in the best interest of Puerto Rico and the mainland.”
But the hedge funds are fighting back. An aggressive TV ad campaign calls the debt restructuring a bailout that’ll be paid for by pensioners and working people. The ads have been running for months now and are financed by a super PAC assumed to be representing the debt holders.
“Don’t be fooled,” warns the ad. “No super Chapter 9 bailout for Puerto Rico.”
“Puerto Rico is not asking for a bailout,” countered Cartagena. “Puerto Rico is not asking for a monetary figure to help it get out of this mess. Puerto Rico is simply asking for a structured way in a court of law to pay off everybody it can with what little money is coming in.”
There are 5 million Puerto Ricans on the mainland. That’s almost double the population on the island itself. Half a million live in New Jersey. Since the crisis intensified, almost 50,000 Puerto Ricans have left the island. But despite recent efforts to raise awareness about the issue, including high-profile celebrities like Tony-winner Lin Manuel Miranda. Many state leaders have not been paying attention.
“I don’t have an informed opinion on that,” admitted Gov. Chris Christie this week, “so I’m really not going to give you one. But it’s obviously a big decision to make.”
At the foundation of this complex house of cards is the question of Puerto Rico’s status as a so-called freely-associated state with just enough rights and privileges to get into this mess but not enough autonomy to get itself out of it. But activists say that is a crisis for another day.