The Solution to Puerto Rico’s Economic Crisis

DEBT-tmagArticle

Here’s the first paragraph in this week’s New York Times story about  Puerto Rico’s manufactured debt crisis: “Standard & Poor’s downgraded the debt of Puerto Rico to junk status on Tuesday, intensifying a cash squeeze for the commonwealth, whose financial condition is of outsize importance to the rest of the United States because its debt is widely held by individual investors through mutual funds.” Granted, this is the “Deal Book” section of the Times, devoted to financial matters, but doesn’t it say something about how this story has been reported over the last months and years?

What this writer, and several others are saying is, “Let’s completely ignore the context of the US’s colonial relationship with Puerto Rico, an unincorporated territory, and announce the island’s economic crisis as newsworthy only because individual investors of mutual funds (who live in the US) are affected. It doesn’t matter at all that 4 million US citizens live there and are forced to endure said cash squeeze, as well as a rapidly deteriorating economy, widespread abandonment by those forced to find work in the US, an extraordinarily high violent crime rate because of the failure of the US-led War on Drugs.”

Nope, the reason this is a story is because it’s more doom and gloom for investors. Of course there are caveats, such as the acknowledgment in this particular story that “Some institutional holders of Puerto Rico’s debt have rules saying they cannot hold junk-rated debt, although those rules typically kick in after two such downgrades by the top rating agencies.” And today, in the Murdoch Business Journal, H.J. Sims & Co. analyst Dick Larkin brayed that he didn’t “give a damn” about the downgrade, calling it “schizophrenic” because “S&P raised Puerto Rico’s bond rating in 2011 when the country’s deficit was much larger than it is now.” Apparently Dick did not agree that S&P had “Found Their Cojones,” according to the assessment of Envision Capital Management’s Marilyn Cohen.

Apart from reducing the fate of Puerto Rico and its people to a hot and bothered discourse that ties financial high rolling to American sexual anxiety, can we step back a little and remember that S&P was one of those corrupt institutions that was an “essential cog” in the 2008 economic crisis (that is still plaguing America and the rest of the world)? It could be that the recent Puerto Rico downgrade was spurred by the fact that the US government is suing Standard & Poor’s for insisting that hundreds of billions of dollars’ worth of securities were safer than they turned out to be. Not surprisingly, S&P has claimed that this suit is in retaliation for their 2011 downgrade of the US’s credit rating.

So what do we have here? An invisible hand pressuring city, state, national, and territorial governments that have been abandoned by federal aid–or in the case of Greece and beyond, the IMF–into austerity policies to restore their credit worthiness. In Puerto Rico’s case, the attempts by the Commonwealth government to cut teachers pensions to get its “financial house in order” have resulted in a two-day strike and constant protest, and because of its dubious status as not an incorporated territory or state, or being a sovereign nation, it is rapidly being pushed into economic oblivion. Let’s not be mistaken about priorities here–working people making a living wage is a problem for global capital. Is it just a coincidence that Wall Street had an ecstatic rebound yesterday after a report that job growth continues to slide?

Puerto Rico is being made an example of, and the knee-jerk rhetoric paints it with the usual stereotypes: taxation avoidance by small business, lack of workforce participation, over-dependence on federal entitlements. But what choice have Puerto Ricans had in creating its economic destiny? The island “commonwealth” has had to accept the transformation of its economy from subsistence agriculture to a model of big agri-biz and exterior capital investment for large corporations and exploitation of an underpaid labor force that was a dry-run for NAFTA. A small middle class was briefly created but has become unsustainable because the tax breaks were revoked and Puerto Rican workers are too high-salaried for globalized capital, which went everywhere else but Puerto Rico after NAFTA. It’s not because we are lazy and we don’t pay taxes. It’s because we have no control over our economy or our relations with other countries.

Puerto Rico cannot ask for a bailout. It’s not only not too big to fail, no one knows where it is or why it has a relationship to the US outside of its failing mutual fund market. Even the tourists don’t know where they are when they go there. What Puerto Rico should do is bail out, on the US, and demand reparations. Talk of reparations over the years, rightly raised by African Americans and Native Americans, can seem fanciful, but the tide can change, and like skilled negotiators, Puerto Rico should start with high demands. Besides, it has morality on its side–we’re living in a world where the transparent goals of ruling money are becoming too obvious to ignore. Even Rolling Stone and Salon, bastions of liberal capitalism and for-profit counterculture, are suggesting that America’s rocky experiment in democracy and the free market is not all that exceptional, has devolved into a stateless high-stakes gambling casino, and its common sense operational logic no longer makes any sense.

Since statehood is clearly not the answer, and will never granted by a Congress obsessed with slashing government spending, and Puerto Rico does have a different language, a different culture, and more in common with Latin America–despite the fact that we have clearly mastered American consumer culture and are a bunch of bilingual world citizens–why not propose that Puerto Rico become gradually independent by negotiating reparations? These reparations, of course would be based on the grievance of second-class citizenship for over 100 years, massive profit extraction from the island by US corporations, who were not taxed in exchange for setting up shop on the island, and the seizure of land for the use of US military bases.

Of course this would entail the creation of an economic think tank that would formulate plans for new trade relations and economic development programs and policies, as well as a lengthy legal debate on how to handle citizenship issues for those who wish to retain US citizenship. But this way, Puerto Rico gets the nation status its people have long desired and defended, and the US gets to make a lump-sum payment over a negotiated period of time rather than continue with years of entitlement payments. And you know, what, how about an apology as well. For West Side Story and a whole bunch of other things, including illegally repressing the independence movement, racializing us, redlining us, objecting to us, condescending to us, marginalizing us, and after all that, gentrifying Spanish Harlem.

Unrealistic? Not if the left wing of the Democratic Party or a newly formed third party pushes to restore progressive taxation, the abandonment of which being the single biggest reason government revenues have shrunk, besides the absurdly calamitous wars in Iraq and Afghanistan, not government spending on social programs or the failure of the poor and working class to pay income taxes. The Republican Party has forced reductions in government spending on our ineffectual President, and we’re still in perpetual crisis, because there is no progressive taxation.

Okay, let’s say the Democrats are not going to be as affected by its emerging progressive wing, there is no third party, and there are no tax increases on the wealthiest, and Puerto Rico continues to deteriorate, and everyone just laughs off this idea of independence with reparations. As they say in the brave new world of tweeting and texting, hahahahahaha. Let me just ask the media, mainstream, business, or otherwise, one thing: Report this as a humanitarian crisis. Do not reduce my people to invisible, expendable people, living in a far-away land that has no importance until US mutual funds investors are threatened. Stop ignoring the fact that the US and its precious Constitution has found a way to hold a colony for 116 years and counting and not have to face any recrimination for it. Wake up. Smell the friggin Porto Rican coffee.

6 Comments

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  1. Superb explanation of Puerto Rico’s status and reason for its chocked economic situation. The president of the United States, members of Congress, the judiciary powers and 70% of citizens of the United States DO NOT know or understand what Puerto Rico IS, and it’s REAL relation with the U.S. So for all of them there is no preoccupation or there are no things for them to do about acting on their true responsible acts to assist PR in getting up to face our obligations.

  2. Residents or Puerto Rico have more control over their relationship with Washington than some want us to believe. The problem is not, and has never been, the type of autonomous government that we are supposed to be, but its people. Our problem is ingrained in our DNA. No autonomous system is supposed to be established with the intention of not assessing its effectiveness throughout the years. Such system has to be tweaked and updated with changes in global economies, social trends, and even technological advances. Letting six decades pass without such revisions and changes is totally appalling. While the people pf Puerto Rico have always demanded such revisions and changes to the Commonwealth, the political owners of that pro-Commonwealth mandate have struggled to carry out those changes and updates with Washington for various reasons, and what’s worse and more prevalent, they haven’t even defend that mandate from those Puerto Rican electoral minority losers who have always resisted changes to the Commonwealth in order to see it destroyed in hopes of getting it replaced by statehood or independence through the back door. Why? Because they can’t win on the ballot. This tribal behaviour is seen by Washington like the adult who sees children bickering and does not want to intervene until they make up their minds.

    • Sure, Commonwealth could be tweaked, but it would still amount to a colonial status. The same sort of status that would allow some people to believe in a genetic defect (unless you are using DNA in a metaphorical sense) that Puerto Ricans share, and also believe that the people who run Washington are adults, and “we” are children.

  3. Great blog. I do not take issue with any of your arguments centered on Puerto Rico’s colonial status, but suggest that the fact that the municipal bond market and credit rating agencies have plagued the island’s economy with a decades-long Stockholm syndrome is complicated by the reality that many among the institutional investors are, at bottom, retirement funds of working folks in the states. Perversely, poor credit ratings, force up the interest rate the Puerto Rican government will have to pay with bond issues they desperately need, and that’s a great return for those institutional investors. The short and long term zero-sum game of Puerto Rican taxpayers having to work harder for less to pay off high interest bonds that benefit institutional investors would suggest a strong incentive to keep Puerto Rico on the verge of bankruptcy. There’s no other way out for Puerto Ricans than to face the grim reality that a new economy and new economic thinking has to evolve to end the oppression of neoliberalism and the Ponzi scheme that is the U.S. economy. If Puerto Ricans do not choose that path, it will be worse when forced upon them by the sudden economic collapse already visible in the horizon. Regrettably, history teaches that we Boricuas are not likely to heed the warning, so hold on to that downshifting roller-coaster ride that is sure to come; “y a alegre el jibarito va . . . que sera de mi islita . . . .”

  4. I agree with all of the comments in someway, the problem is that it really does not matter what Puerto Rico decides to do with the island status, unless we become independent, we are a very small island, we do not need all the personnel at the Capitol, 78 Mayors, the outrageous amount of worthless government positions (specially that are given to friends and families without the right education or qualifications) and also the Governor needs a team of 15 people to do his job. What needs to happen is, to eliminate everything I previously mentioned, if they are educated and professionals let them struggle looking for employment elsewhere like the rest of the puertoricans do everyday. Puerto Rico needs to operate without political parties, it needs a Governor with a good team of people maybe 10, economist, financial analysts and managers, with their interest being, the best for the island and our working class. Also agree with Puerto Rico asking the US for reparations enough to pay our debt, which most of it is to americans and also to have enough to help our economy, teachers, police, hospitals, small business, revamp our agriculture, our cattle industry in a way that we will not have to depend on the US or any other country in a direct way and maybe, maybe then Puerto Rico will return to being the Island of Enchantment again.

    • I would agree that 3.6 million people on an island with more potential than the creative reach of its leaders can fulfill has more government than it needs, compared perhaps to states (U.S) that have the same or less population. The Puerto Rican people voted to reduce its legislature to a unicameral system and the politicians in power proceeded to ignore their will but, having short memories (as voters in the Mainland often demonstrate), those voters will not remember to punish the elected ‘CMs’ that gave the public the finger. Puerto Ricans are, arguably, as uninformed and confused about the power of citizenry as voters in the United States demonstrate every day in their spectator role. But government is needed and it’s a bit simplistic to suggest that the Puerto Rican governor can do with 15 people, but it is certainly plausible to suggest that every little town on the island does not need a mayor and a representative – regionalization of political boundaries would be worth studying to provide us more efficient governance and safety-net essentials: education, health, infrastructure, public transportation (that is needed for an entire island with far too many cars), and public safety that does not give us fascist enforcement practices.

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