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Why Are We Colonizing Puerto Rico?

A GOP proposal to resolve the island's debt crisis would harm its economy, sideline its democracy, and boost corporate profits.

Saul Loeb/Getty Images

One catalyst to the water crisis in Flint was the role of the city’s emergency financial manager, empowered by the state of Michigan to dictate practically every aspect of local governance. The financial manager wasn’t accountable to Flint residents, and didn’t have to worry about whether ignoring their concerns about lead-tainted water would harm future election prospects. Democracy in Flint, for all practical purposes, had been suspended by the state.

Now Republicans in Congress want to export this model across the Atlantic Ocean, to the island of Puerto Rico. Proposed legislation from the House Natural Resources Committee, ostensibly drawn up to rescue Puerto Rico from its debt crisis, imposes a federal oversight board that effectively turns the commonwealth into a colony. The result would spell disaster for vulnerable Puerto Rican citizens, and create a bonanza for private corporations looking to take over public functions. Worst of all, it would eliminate the basic principle of self-government Americans fought a revolution to win—only to now deny it to a vassal state, a century after the supposed end of our imperial designs.

Here is the quick backstory: After a decade of economic depression and encouragements by financial institutions to paper over it with borrowing, Puerto Rico carries $72 billion in “unpayable” debt. Successive local governments made plenty of mistakes to exacerbate the crisis. Congress played a role too, making shipping costs to the island larger and Medicare reimbursements smaller, along with many other rules that produced economic hardship. Unemployment on the island has hit 12 percent, and more Puerto Ricans have migrated away in the last two years than in all of the 1980s and 1990s combined.

One solution to the mess would be for Puerto Rico to file bankruptcy and restructure its debt. But peculiar rules disallow commonwealths from utilizing U.S. bankruptcy laws the way cities like Detroit have. These rules give so-called “vulture funds,” who have scooped up the Puerto Rican debt at a discount, the opportunity to demand repayment in full amid threats of a lawsuit. The vultures have little incentive to make a deal because the laws work so completely in their favor.

The Puerto Rican government has pleaded with Congress to help it weather the crisis, and initially House Speaker Paul Ryan promised legislation by the end of March. Today is April 1, and we’re only at the “discussion draft” stage. The real deadline is May 1, when debt payments totaling $2.4 billion begin to come due. Puerto Rico has defaulted on minor amounts of the debt on two occasions, paying off the rest by using funds earmarked for future creditor payments. But the island leadership has said it cannot make upcoming payments without a creditor deal or congressional action.

The House discussion draft, known as the “Puerto Rico Oversight, Management, and Economic Stability Act’’ or PROMESA (Spanish for “promise”), would set up a Financial Oversight and Management Board for the commonwealth. This five-member board would by appointed by the president, but four of the five appointees would come from lists provided by the House Speaker and the Senate Majority Leader. No board member can be a Puerto Rican elected official or even a candidate for office; the governor of the commonwealth would sit on the board as an additional member, but have no voting rights.

In other words, Puerto Ricans would have absolutely no say over the oversight board. In fact, the board wouldn’t have to follow the laws of Puerto Rico. According to a summary of the discussion draft, the oversight board will be empowered to audit the Puerto Rican government (and would have subpoena power to compel documents), and to subsequently create “efficiencies and reforms” to address the debt crisis. Those are code words for austerity, which has already ravaged the island and worsened its economic prospects.

In other words, PROMESA is a recipe to rip away the sovereignty from Puerto Rico’s government and impose austerity solutions with no hope of escape. This is precisely the kind of counterproductive scenario that pushed Greece into depression. And inevitably, it would resolve the debt crisis on the backs of pensioners and ordinary Puerto Rican citizens, with the bondholders almost entirely protected.

The bill triggers an automatic injunction, halting Puerto Rican debt payments for 18 months and preventing creditors from suing to get their money back more quickly. But $72 billion in unpayable debt can only be resolved through some form of restructuring. PROMESA doesn’t require that; in fact, it makes such restructuring a last resort. First, Puerto Rico must see if more “efficiencies” imposed by the board—i.e., slashing budget cuts—can free up enough funds to pay off the debt. Then, the island and its creditors must engage in voluntary mediation to find a solution. Only if that fails would court-ordered restructuring (the draft is careful to not call this bankruptcy) kick in.

While such a plan would theoretically allow for the extinguishing of some debt, Section 404 of the discussion draft (as Melissa Jacoby points out at says the opposite: that “Nothing in this Act may be construed to relieve any obligations existing as of the date of the enactment ... to repay any individual or entity from whom Puerto Rico has borrowed funds.” So if all else fails, Puerto Rico can restructure the debt—except it can’t. 

This gives Puerto Rico no leverage to force a decent deal. Creditors have actually united to put together their own counter-proposal to Puerto Rico’s initial offer of a debt reduction. But they have no reason to grant Puerto Rico good terms without some threat that they might do worse in the courts. Indeed, the oversight board can veto any voluntary deal. That takes even the ability to negotiate out of the Puerto Rican government’s hands. 

The oversight board wouldn’t be merely empowered to resolve the debt crisis, but to restructure the entire Puerto Rican economy—in favor of the usual corporate suspects. The board would have unique authority to issue Puerto Rican municipal debt for the foreseeable future. It would include a “revitalization coordinator” who would approve all infrastructure projects on the island, bypassing reviews under Puerto Rican law. That appears tailor-made for privatization of key infrastructure needs on the island; in fact, the House’s discussion draft states that one of the criteria for future projects is “access to private capital.”

The board would also assume enforcement powers that would let it block unionized Puerto Rican public workers from striking. The bill prevents Puerto Rico from benefiting from the Labor Department’s new proposed overtime rules, exempting thousands of island workers from overtime pay. And it would grant exemptions to federal minimum-wage laws for temporary workers in Puerto Rico under age 25, creating a two-tiered structure and encouraging a race to the bottom.

House National Resources Committee chair Rob Bishop has said he released the draft of the legislation to “encourage feedback.” So far, it’s been largely negative. Governor Alejandro García Padilla said it would deprive the island of its own government. The president of the Puerto Rican Senate related it to “colonial subjugations.” And House Democratic Leader Nancy Pelosi said that “more progress must be made throughout the legislation,” adding that “the sweeping powers of the oversight board … would exert undue and undemocratic control over Puerto Rico’s government and residents.” 

Since right-wing Republicans see any debt relief, however remote, as rewarding failure, Democrats will probably be needed for any bill to pass, so Pelosi’s words mean more than usual here. As the price of their support, Democrats should demand an end to excluding Puerto Rican municipalities from the bankruptcy process. That’s the only way to create a level playing field that protects 4.5 million U.S. citizens from untold suffering. They should also insist on granting equal treatment for Puerto Rico on things like Medicare reimbursement, access to the Earned Income Tax Credit, and Jones Act shipping rules. They should come up with economic initiatives for the island, too, because not even bankruptcy will pull Puerto Rico out of depression. 

Above all else, Democrats must prevent the creation of an oversight board that effectively moves the capital of Puerto Rico from San Juan to Washington. The discussion draft proposes war on self-government. The cure of the fiscal oversight board must not be worse than the disease.