Puerto Rico: Who Really Owes Whom?

Kent Paterson

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Touted as a bipartisan compromise to the Puerto Rico debt crisis, a bill advancing in the U.S. Congress proposes establishing a Michigan-style financial control board with power over many aspects of Puerto Rican life.

Ironically named PROMESA (“promise” in Spanish), and supported by Republican House Speaker Paul Ryan and Democratic Minority Leader Nancy Pelosi, the Puerto Rican Oversight, Management and Economic Stability Act (HR 5287) proposes to resolve Puerto Rico’s $70 billion debt by designating a seven-member board to oversee debt restructuring and budgetary reordering likely to further squeeze the economically strangled public of the U.S. colonial possession.

By a vote of 297-127, PROMESA was approved in the U.S. House of Representatives June 9 and sent to the Senate for passage. Praising the House action, the White House Press Secretary urged the Senate to “act expeditiously” on the legislation so President Obama could sign it into law “ahead of the critical July 1 payment deadline” when a $2 billion payment the Puerto Rican government says it cannot make is due.

Many Puerto Ricans and U.S. residents of Puerto Rican descent, however, are staunchly against PROMESA, including prominent Illinois Democratic Congressman Luis Gutierrez.

Quoted in the San Juan daily El Nuevo Dia, Gutierrez condemned Congress for treating Puerto Ricans like “trash” and compared the financial control board to the old Pinochet military junta of Chile.

Among PROMESA’s provisions is a measure that allows the Puerto Rican government to slash the minimum wage for workers under 25 from $7.25 per hour to $4.25 per hour.

If the pending power of the debt oversight board wasn’t enough to stir nationalist sentiments, Puerto Ricans reacted with outrage to a report from the Congressional Budget Office (CBO) that the establishment of the super-governing board would cost at least $370 million between 2017 and 2022.

“The CBO report seems to support the new era of Donald Trump’s government philosophy,” Rafael Fantauzzi, president of the National Puerto Rican Coalition, told El Nuevo Dia. “Congress is going to construct a wall (the financial control board) and Puerto Rico is going to pay for it.”

Though framed as the solution to a Puerto Rican problem, PROMESA has broader implications beyond the Caribbean island; the envisioned financial control board might be viewed as something of a colonial boomerang, originating in the heart of the empire in free trade-frazzled places like Detroit and Flint, exported to Puerto Rico and possibly re-imported to a community near you.

“What city or state is next up?” wrote Dave Johnson in Common Dreams.

Obama Administration Pulls Out the Stops

Responding to stinging criticism, the Obama Administration pulled out the stops in a pro-PROMESA campaign, lobbying key lawmakers, pledging Puerto Ricans will have a real voice on the oversight board and insisting that “there is no real alternative to the current bill,” given the political circumstances.

Though conceding there were undesirable aspects to the legislation, the White House maintained that if the compromise bill was not passed Puerto Rico’s creditors- including Wall Street hedge funds- would turn to litigation and prevail in the courts at the expense of 300,000 public pensioners, who are not protected from such legal judgments under the Puerto Rican Constitution.

In addition to the $70 billion debt, Puerto Rican pensions are estimated to be underfunded to the tune of $44 billion, according to press accounts.

Currently, one-third of the Puerto Rican budget goes toward debt repayments, and a PROMESA-guided debt reshuffling would free up money for social services, the Obama administration claimed.

“It is simply not true that PROMESA favors hedge funds. To the contrary, hedge funds and other powerful financial interests have spent millions of dollars on attack ads and hired well-known lobbyists to work to defeat the legislation,” the White House said.

Only a week before the final House vote on PROMESA and on the eve of the June 5 Democratic primary in Puerto Rico (Puerto Ricans can vote in primaries but not the general presidential election), when Vermont Senator Bernie Sanders was slamming PROMESA and vowing to sponsor alternative debt-relief legislation, U.S. Agriculture Secretary Tom Vilsack traveled to Puerto Rico and unveiled a new economic initiative tagged Promise Zones.

Roping in a dozen federal agencies, the economic plan touches on public-private investment partnerships, affordable housing, public safety and education. A future Eastern Puerto Rico Promise Zone envisioned to encompass tourism, film and TV production, ship recycling and a “commercial scale hydroponic farm” forms a centerpiece of the U.S. Department of Agriculture-led initiative.

Vilsack also announced that Washington would increase financial payments for school meals, and permit the use of electronic cards by Nutrition Assistance Program participants at farmers’ markets.

The USDA did not immediately reveal the amount of the planned US government investment the Promise Zones, but said in a statement that the initiative follows “more than 20 billion USDA has already invested in Puerto Rico since 2009.”

Attesting to the importance the Obama Administration places on PROMESA and Puerto Rico, the President devoted his June 11 weekly address to the subject, painting a grim picture of conditions on the island that include school closures, power shortages and health care crises.

“And as Zika threatens both the island and the mainland, workers dealing with mosquito control to help protect women and their unborn babies are at risk of being laid off,” Obama said in yet another PROMESA pitch.

Employing another argument in favor of PROMESA, the White House warned that if the bill is not passed a taxpayer bailout of Puerto Rico might be necessary “to avert a humanitarian disaster.”

Roots of the Crisis

Many would argue that Puerto Rico is already immersed in a humanitarian disaster, and has been for some time. In this sense, PROMESA might be viewed as the sour icing on a cake that’s been crumbling since 2006.

“The situation is similar to the ‘30s. I’d say it’s the worst situation in 70 years. There’s a forced migration that the government is stimulating,” said Puerto Rican left economist and activist Ismael Muller Vazquez.

In human terms, Muller Vazquez measures the depth of the catastrophe by a poverty rate hovering around 50 percent, real unemployment in the 20 percent-plus range, hundreds of shuttered schools, high crime rates, increased violence and suicide (more than 600 drug-related homicides per year) and an outflow of 500,000 people to the U.S. during the last ten years- a stunning migration of 10 percent of the island’s residents to the United States in a population movement not seen since an earlier heyday of Puerto Rican migration during the 1940s and 1950s.

Unlike other patterns of Latin American migration in which migrants send money back home, remittances do not significantly prop up the island’s economy.

“On the contrary, many people here send money to their relatives. Often they arrive to the U.S. in worse shape than when they were here,” Muller Vazquez said in an interview, adding that working-class Puerto Ricans make up a large portion of the new migrants to places like Florida, where some even wind up homeless.

According to the economist, Puerto Rico’s development is distorted and stunted by U.S. control of the island’s budget, the privatization of public services and energy resources, the displacement of small business by U.S. big box chains, and the shrinking of the agricultural base. He calculates that fully 87 percent of Puerto Rico’s food is imported, with serious health consequences. The traditional Puerto Rican diet has been replaced with food consumption consisting of “saturated fats, artificial ingredients and genetically modified products,” according to Muller Vazquez.

If the Great Recession dizzied the imperial center, it walloped the colony. For instance, the Puerto Rican government laid off 30,000 public employees (15 percent of the state workforce) from 2008 to 2012, with many accepting an early retirement offer that had the effect of reducing contributions to the pension system, Muller Vazquez said.

Muller Vazquez, who is an activist with the Puerto Rican Socialist Front and a member of a delegation to the United Nations Decolonization Committee, said the Puerto Rican people are not taking the crisis lying down. Although protests are routinely censored by the corporate media and the popular movement is not yet united in a central coordinating body, discontent is widespread and growing, according to the scholar.

“There are protests every day-strikes, street demonstrations,” he added. “(Recently) transportation workers paralyzed a street. There is something every week.”

Popular mobilizations with more overt political tones like the movement for the release of Oscar Lopez Rivera and Ana Belen Montes are also on rise. “Thousands” participated in a recent demonstration demanding freedom for two persons of Puerto Rican heritage considered political prisoners, Muller Vasquez said.

Imprisoned in the United States since 1981, Lopez Rivera, a Vietnam veteran, was accused of seditious conspiracy and membership in the Armed Forces of National Liberation (FALN), a pro-independence guerrilla group that carried out more than 100 armed actions during the 1970s and early 1980s, mainly bombings of U.S. government and corporate targets in New York and Chicago. Lopez Rivera’s freedom is supported by a politically pluralistic range of Puerto Ricans, and the ailing prisoner’s case is getting increased international attention.

Representative Gutierrez and the two other members of Congress of Puerto Rican descent, New Yorkers Jose Serrano and Nydia Velazquez, wrote a letter to President Obama earlier this year urging the 73-year-old Lopez Rivera’s “immediate release.” The letter was also signed by leading statehood advocate Pedro Pierluisi, the resident commissioner of Puerto Rico and unsuccessful New Progressive Party candidate for governor in the June primary.

Now almost 60, Ana Belen Montes is a former U.S. Defense Intelligence Agency analyst who was arrested in 2001 shortly after the 9-11 attacks and later convicted of spying for Cuba. Averting the death penalty, Montes was sentenced to 25 years in prison.

Despite the thaw in relations between Washington and Havana, and the release of the Cuban Five held in U.S. maximum security prisons for many years on espionage charges, Montes remains imprisoned. According to different press stories, Montes justified her actions as principled support of the Cuban Revolution and Latin American sovereignty.

Unmasking a Colonial Relationship

PROMESA exposes the essence of the U.S. relationship with Puerto Rico. While the U.S. government has long argued that Puerto Rico is a freely-associated state whose residents enjoy U.S. citizenship, the United Nations Decolonization Committee considers the Caribbean Island of 3.5 million people a colony with the right to self-determination, including independence.

The controversy over PROMESA inspired commentary by Senator Bernie Sanders and others that likened the proposed oversight board to a colonial master.

“Pardon me, senator, but Puerto Rico is a colony of the United States and has been since 1898”, wrote Puerto Rican journalist and environmentalist Carmelo Ruiz. “Residents of Puerto Rico have no presidential vote, no representation in the U.S. Congress, and cannot join international organizations like the United Nations. If that’s not colonialism, what is?”

Ruiz and others in the pro-independence camp posit an argument that gets virtually no play in the U.S. or Spanish-language corporate media: the $70 billion debt is illegitimate, and the U.S. owes Puerto Rico reparations. Ironically, part of the precedence for this position comes from the United States itself.

Ruiz noted how Washington told Spain after the 1898 war that Cuba did not owe $400 million demanded by the Spanish government because the debt was incurred when the island had been ruled by “an undemocratic, unaccountable colonial power, ” e.g., Spain.

Ample documentation exists showing how Puerto Rican resources and labor have since been systematically exploited by the colonial powers-that be.

New York columnist and Democracy Now co-host Juan Gonzalez’s landmark book Harvest of Empire, documents the lucrative privileges enjoyed by U.S. corporations gifted with huge tax breaks and access to a productive, cheap labor pool long before NAFTA.

In 1995, for instance, net income from U.S. direct investment in Puerto Rico totaled more than $14 billion, beating out similar income flows from U.S. investments in major European nations, Japan, Brazil and Mexico.

Gonzalez cites a federal study that found each pharmaceutical worker in Puerto Rico produced three times more than his or her U.S. counterpart in 2002, individually generating $1.5 million in wealth.

Puerto Rico’s colonial status, “…turned the island, with its combination of duty-free trade, low wages and tax loopholes, into a corporate bonanza unlike any other in the world,” Gonzalez wrote.

In an essay Muller Vazquez noted how the productivity of Puerto Rican workers-the highest in Latin America- nearly equals that of their U.S. counterparts, even though the islanders receive half the pay.

According to Muller Vazquez, $34 billion in wealth was transferred from the island to the U.S by means of individual tax and fee payments, debt service to U.S. banks and bondholders, repatriation of corporate profits, skimping on Social Security and Medicare payments, and Puerto Rican capital outflows in 2014 alone.

The amount was about double of federal funds transfers to Puerto Rico, which are frequently tossed about as evidence of Washington’s supposed propping up of a welfare state.

For many years, Puerto Rico was upheld by the U.S. as a Third World success story, boasting the highest standard of living in Latin America. Yet according to Muller Vazquez, the easy availability of credit pushed by U.S. banks and government institutions combined with migration to the U.S. masked the real, dependent nature of the colonial economy.

In the debt controversy, Puerto Rican national identity has frequently been erased. In their bid to get PROMESA passed, Obama and leading Democrats and Republicans framed the economic crisis as one afflicting Americans in need of a helping hand, “just like folks in Maine, or Oklahoma or New Mexico,” in the President’s words.

Inconvenient matters of super-profits and labor exploitation, unequal wealth transfers and corporate complicity in debt defaults are omitted from the Washington discourse. Economists who question the legitimacy of the Puerto Rican debt or the broader questions of who benefits and who doesn’t from the colonial economy are marginalized and shunted aside, Muller Vazquez added.

Finally, a Puerto Rican public credit commission is probing whether upwards of $30 billion of the current debt was acquired illegally–with the presumed knowledge of U.S. lenders.

The Puerto Rican weekly Claridad recently reported that preliminary findings of the commission indicated that $30-plus billion was borrowed to finance state budget deficits in contravention of the Puerto Rican constitution, as far back as 1979. Whether the commission’s work bears fruits, however, could ultimately be decided by a PROMESA financial control board if the law clears the Senate.

On June 9, Senator Sanders made good on his promise to sponsor alternative debt relief legislation, introducing in the Senate a bill (S. 3044) which proposes establishing the “Reconstruction Finance Corporation of Puerto Rico” and investing in renewable energy and public works projects, among other measures, according to El Nuevo Dia. Sanders’ bill also calls for a binding plebiscite to be held no later than January 31, 2018 on three future political options for Puerto Rico-statehood, independence or the current arrangement. Crafted as an anti-austerity solution, Sanders’ legislation probably has little prospect of passing.

Political Repercussions of Crisis

Perhaps better than any other development during the last several decades, the debt crisis has renewed attention on Puerto Rico’s political status, which has bounced around the United Nations and the U.S. Congress for years without resolution.

The same day that PROMESA was passed by the U.S. House, the U.S. Supreme Court decision ruled Puerto Rico could not prosecute a defendant facing U.S. federal charges (Puerto Rico vs. Sanchez Valle). The ruling had islanders of different political stripes shaking their heads and seriously questioning the viability of the Free Associated State.

Historically, Puerto Ricans have been divided in three political camps-the pro-statehood New Progressive Party, the pro-Free Associated State Popular Democratic Party and the pro-independence forces of various parties and organizations.

For the statehooders, PROMESA boosts their arguments for annexation. Resident Commissioner Pierluisi, for instance, wrote in El Nuevo Dia that Promesa “opens the doors to the decolonization of Puerto Rico, eliminates the Free Associated State as a real option and authorizes the convening of status consultation which I propose as the admission of Puerto Rico as a state.”

For Vazquez Muller, the crisis is destroying the political legitimacy of the Free Associated State, forcing longtime political leaders of the ruling Popular Democratic Party into renegotiating a “new pact” that changes the facade of the colonial arrangement but does not lead toward true independence.

The crisis is also leading to the growth of both the pro-statehood and pro-independence forces, witnessed for example, by a visible increase in people joining the “national liberation movement” during the past couple of years, he added.

Nonetheless, no single political tendency has the prevailing momentum or upper-hand.

“I don’t think (most Puerto Ricans) have a position of where the country should go. People blame things on the relationship with the U.S., but don’t know where the country should go,” Muller Vazquez said.

Meantime, the case of Puerto Rico will be heard by the U.N. Decolonization Committee between June 16 and 20 in New York. While 160 nations have signed on to a document backing independence, with places like Iraq and Syria in flames Puerto Rico is so far not viewed as “an urgent question” by the United Nations, Muller Vazquez cautioned.

For many Puerto Ricans, however, ongoing developments signal the urgency of decolonization.

Resources:

Puerto Rican Socialist Front: https://www.facebook.com/frentesocialistapur