Abolish the debt that is drowning Puerto Rico
We need to organize for immediate disaster relief for Puerto Rico--but we can also expose and oppose the debt disaster that came before the hurricanes.
October 11, 2017
SOCIALIST WORKER supports President Trump in his call to cancel Puerto Rico's punishing debt.
We can pretty much guarantee you'll never see the first five words of that sentence here ever again--and the supervisors of the "adult day care center" at 1600 Pennsylvania Avenue are obviously trying like hell to make sure we never have reason to.
But it says a lot about the Wall Street-made catastrophe that has plagued Puerto Rico for years before Hurricane Maria that even a reactionary fanatic like Trump didn't think twice before stating the obvious.
"They owe a lot of money to your friends on Wall Street, and we're going to have to wipe that out," Trump said in an interview last week with Geraldo Rivera of Fox News. "I don't know if it's Goldman Sachs, but whoever it is, you can wave goodbye to that."
"Wall Street promptly freaked out," Politico reported the next day. That was an understatement. Heavy trading on the normally stable bond market pushed the value of Puerto Rico's general obligation bonds--already devalued to 56 cents on the dollar after the island effectively declared bankruptcy earlier this year--down to 37 cents on the dollar.
The White House then "move[d] swiftly to clean up Trump's seemingly offhand remarks," Politico continued. Again an understatement. Office of Management and Budget Director Mick Mulvaney was rushed in front of a television camera to tell CNN: "I wouldn't take it word for word with that."
Just to make sure Wall Street got the message that no one in the Trump administration had any intention of doing what the head of the Trump administration had just said, Mulvaney was more explicit--and more contemptuous of the Puerto Rican people--in a second interview with Bloomberg: "We are not going to bail them out. We are not going to pay off those debts."
Anyone want to bet that Trump doesn't talk about "saying goodbye" to Puerto Rico's debt again?
But the simple fact is that justice demands exactly that: The cancelation of all of Puerto Rico's debt repayments, by the action of the U.S. government, taking responsibility for the Wall Street loan sharks who inflicted the damage in the first place.
Puerto Rico is caught in the same kind of debt trap that has ensnared poor countries in hock to the International Monetary Fund and World Bank--or more advanced economies like Greece, at the hands of European bankers and bureaucrats. The aim is to force vulnerable societies to knuckle under to the will of the ruling class.
And now, the devastation of neoliberal policies has made Puerto Rico's crisis following Hurricanes Irma and Maria much, much worse.
People who want to show solidarity with Puerto Rico today will rightly focus on ways to provide immediate relief to communities desperate for food, water and critical supplies. SW hopes its readers will raise what money they can to donate to grassroots efforts--see the What You Can Do box with this article.
But we have another job to do now, while Puerto Rico lingers in the media spotlight: expose the debt trap that made the island more vulnerable when Maria struck and demand that it end.
IN MAY of this year, Puerto Rico's government went to federal court to file for the equivalent of bankruptcy on a debt that includes over $74 billion in repayments on government bonds and $49 billion in pension obligations. But in return for immediate relief, Puerto Rico will have to abide by even harsher austerity dictates.
The debt burden--which is larger than the annual economic output of the island when pension obligations are added in--is one consequence of a recession that has lasted for more than a decade.
The economic slump began when Corporate America--after many years of making super-profits off operations in Puerto Rico, particularly pharmaceutical production--abandoned the island after favorable tax incentives for investment were phased out starting in the early 2000s. Annual corporate investment in Puerto Rico peaked at 20.7 percent of gross domestic product in 1999--it has fallen to under 7.9 percent as of 2016.
Successive governments--whether led by New Progressive Party, which is aligned with the U.S. Republicans, or the Popular Democratic Party, tied to the Democrats--imposed policies that were guaranteed to make the crisis worse: neoliberal austerity.
Social spending was cut drastically--reductions in the island's education budget led to hundreds of schools being closed, for example. Public-sector workers have been under intense pressure, with tens of thousands of layoffs and attacks on their unions. Regressive taxes have been hiked, making the sales tax of 11.5 percent higher than any U.S. state.
A succession of state assets were privatized on terms guaranteed to benefit the private purchasers: Back in the 1990s, conservative Gov. Pedro Rosselló González sold off hospitals that were part of a public health care system that was once fairly accessible and affordable at around half their market value.
Austerity measures propelled the vicious circle: Continuing economic decline made shortfalls in government revenues worse, leading to more spending cuts and regressive taxes that caused further economic contraction, and on and on.
The consequences even before Hurricane Maria were dire: Official unemployment is 11.7 percent, well over double the rate in the U.S. as a whole. Just under half of people on the island live in poverty, including three in five children.
THROUGH IT all, debt was the straitjacket to make sure Puerto Rico didn't stray from austerity.
Faced with declining revenues as a result of the contracting economy, various branches and agencies of the Puerto Rican government issued bonds to raise money--but these came not only with the usual obligation to repay the cash with interest, but increasing pressure to intensify neoliberal measures.
The vultures of Wall Street were eager to set up the increasingly complex bond issues. They paid better than most municipal issues, and interest on income from Puerto Rico bonds is exempt from city, state and federal taxes.
But the biggest gamblers on Wall Street see more than a tax loophole in the suffering of the people of Puerto Rico. A 2015 report from the Hedgeclippers.org website paints an ugly picture:
Several groups of hedge funds have bought up large chunks of Puerto Rican debt at discounts and have also pushed the island to borrow at extremely favorable terms for creditors. Hedge fund managers are also recommending the implementation of austerity measures.
Known as "vulture funds," these investors have followed a similar game plan in other debt crises, in countries such as Greece and Argentina. The spoils they ultimately seek are not just bond payments, but structural reforms and privatization schemes that give them extraordinary wealth and power--at the expense of everyone else.
It's been obvious for several years that Puerto Rico's debt burden is unpayable, but the hedge-fund vultures are counting on enforcers in the form of the U.S. government.
A law pushed through Congress last year by Barack Obama and the Democrats established a seven-person Fiscal Control Board with broad powers to direct government agencies on the island and dictate laws and policies. It has ordered, for example, exemptions to federal standards on the minimum wage, Medicaid and Temporary Assistance to Needy Families.
To top it off, the seven members of the board include some of the same financiers who imposed neoliberal policies and arranged the deals that caused the debt burden.
Bondholders may still be forced to take a "haircut"--that is, accept less than what they are owed on Puerto Rico's bonds. But the mission of the Fiscal Control Board is to make sure working people on the island, not investors, pay as much of the price as possible.
ALL THIS "reads like the 21st century equivalent of the metropolitan looting of wealth from the colonies," as Lance Selfa wrote for SocialistWorker.org after Hurricane Maria struck Puerto Rico head on.
And we know who the looters and their accomplices are.
The hedge-fund parasites who are trying to inflict more suffering on Puerto Rico rather than lose a penny from their investment gambles should face pickets outside their offices. Members of Congress--Republican and Democrat alike--should be greeted at public events by solidarity activists demanding that they remove the noose that is strangling the island.
There is much work to be done to organize for immediate relief in Puerto Rico after the hurricane catastrophe. But the left has an opportunity to also expose and oppose the unnatural disaster that came before Irma and Maria.
We may not hear any more about canceling the debt from Donald Trump, but we can raise our own voices to demand that this crushing burden be lifted off the people of Puerto Rico.