The Roots of Puerto Rico’s Debt Crisis and Why Austerity Won’t Work
The US government is at least partially responsible for the emergency, which is affecting millions of what are effectively second-class citizens
By Ed Morales
Riding through the hills of Canóvanas with Prima, a vacationing 65-year-old Brooklynite who was born and raised in the Puerto Rican countryside, I got a brief lesson of the island’s history and political economy. “This land was all cañaverales,” she said, meaning rough acres of sugar-cane country, which was now replaced by square miles upon square miles of suburban tract housing. “When that ended, some people worked in factories, and construction. Now, I don’t know what’s going to happen. I think the empire is collapsing.”
Today, that history has caught up with the island. Puerto Rico–an unincorporated territory of the U.S. with 3.5 million US citizen residents who do not have the right to vote for President nor representation in Congress—is making headlines these days because of its inability to pay a $72 billion debt owed to holders of its devalued bonds. Its government, which issued the bonds, often through various governmental corporations, such as the infamous PREPA, the electrical power authority, is on the verge of default, signaled by Governor Alejandro García Padilla’s admission last week to The New York Times that the debt was “not payable.”
The debt crisis, which has spurred comparisons to Argentina, Detroit, and of course, the recent tumultuous events in Greece, occurs at the climax of a recession that begin in 2006, two years before the Great Recession, and is accompanied by sundry related bad news. Because of the government’s shrinking tax base and huge debt service expense, a sales tax of 11.5%, higher than in any state of the union has been imposed. Hundreds of schools are closing and jobs are cut as the island continues to see hundreds of thousands leave for the mainland, and a health care crisis is looming because of a proposed cut of $150 million is Medicare Advantage reimbursements. The unemployment rate, sitting at between 13% and 14%, is bad, but pales in comparison to a workforce participation rate around 40%. As a result, the island is in the throes of a persistent depopulation, with about 200,000 migrating to the mainland in the last decade.
Read the rest here in The Nation.
In case you missed last week’s second dispatch from Puerto Rico published in The Guardian, you can access it here.