Aug 1, 2016
On June 13, the Supreme Court declared that the U.S. Congress would oversee the restructuring of Puerto Rico’s debt, in a case pitting Puerto Rico’s government against an investment fund from California. In doing so, the Supreme Court reaffirmed, for everyone to see, that Puerto Rico is a U.S. colony, all for the benefit of the speculators.
For a number of years Puerto Rico has been facing a deep financial crisis. Its total debt has grown to 72 billion dollars, of which 20 billion is owed by three of the main public utilities that provide power, water, sewer, and transportation.
In the 1970s the U.S. Congress passed a law saying that businesses operating in Puerto Rico did not have to pay any federal taxes. And since wages in Puerto Rico were three times less than on the mainland, investors rushed into Puerto Rico. Some light industries in particular, like pharmaceuticals, set up shop on the island.
But starting in 1996, Congress progressively suppressed the tax exemption, and U.S. companies gradually left Puerto Rico. To keep afloat, the Puerto Rican government started issuing bonds to borrow money. Speculators saw a windfall coming: they were sure to recoup their investments plus sizeable payments of interest. The payments on this debt quickly became the single biggest item in the budget of the Puerto Rican government, growing to almost 40 percent of total expenses.
In 2014, the banks rated Puerto Rican bonds “junk bonds,” that is, high risk. This allowed the banks and investment funds to profit even more by raising the interest rates they charged.
The payments on this enormous debt threaten to cause blackouts and shutdowns of the water system, public transit, the schools, and the island’s public hospitals. Puerto Rico tried to declare bankruptcy, like the city of Detroit had done. But the laws governing U.S. territories like Puerto Rico don’t allow it to do this.
These laws impose all the constraints that the states have to follow, with none of the advantages. And Puerto Rico could not borrow from the IMF or other international organizations.
In 2014, the Puerto Rican legislature passed the Recovery Act, which was supposed to allow the Puerto Rican government to manage its utility debt by itself. But the U.S. Supreme Court decision has definitively blocked that possibility. It reaffirmed the supremacy of the U.S. Congress over the elected government of Puerto Rico.
So the U.S. Congress will decide the best way to deal with the situation in Puerto Rico. The majority of the island’s creditors are speculative funds based in the U.S., which have plenty of ways to pressure the U.S. Congress to make sure the outcome will be entirely to their advantage.
This is not a good sign for the population, which already had not much to hope for from its elected officials: Puerto Rican leaders had already proposed a deep reduction in public services in order to pay back a debt for which the workers and the poor population of Puerto Rico are not in the least responsible.
It is time for the capitalists, and not the workers, to pay their debts!