As Puerto Rico deals with its fiscal woes, officials on Tuesday took steps to halt all government debt payments in a sign that they’re rejecting Washington’s latest plans to rescue the troubled island. This can be viewed as a sudden move, but it’s not all that surprising if anyone in Puerto Rico took a closer look at Washington’s efforts to restructure the island’s finances.
Recently, House Republicans unveiled draft legislation that would essentially allow Puerto to declare bankruptcy under a fiscal oversight authority charged with auditing its finances. If passed, the bill would institute a five-member Oversight Board that would essentially manage Puerto Rico’s debts and public finances. The federal Secretary of the Treasury and Puerto Rico’s governor would be relegated to non-voting members, leaving the island with little, if any, say over its financial future. The Oversight Board would override the budgetary decisions of the island’s elected government and bar the Commonwealth’s judiciary from reviewing its actions.
Without question, Washington’s legates are in the driver’s seat, and the creation of this new authority leaves Puerto Rico with a rather intriguing set of questions: Who stands to gain? Who loses? And ultimately, whose interests are best served by its authorization? We can only speculate who the new U.S. president, or his or her successor, might nominate. And as with all federal appointments, and particularly in this overcharged partisan atmosphere, there’s always the question of who the US Senate is willing to confirm. The Oversight Board’s composition, likely three members from the US mainland and two from the island, will have a major impact on the answers to those questions.
The Board’s majority is more likely to prioritize the interests of Wall Street and U.S. mainland bondholders than those of Puerto Rican islanders. With the balance of power leaning towards the US mainland, the Board may absolve part of Puerto Rico’s debt, but it is very likely to leave Puerto Rico saddle with an enormous, if ultimately unpayable, debt.
In order to repay its colossal debt, the Board has the authority to negotiate a budget with the Commonwealth government and, in the absence of a compromise, impose a budget. That power translates into levying higher taxes on the Puerto Rican people.
Additionally, the bill empowers the Board, for budgetary reasons, to amend the structure of local government agencies and departments. That power is only necessary if the federal government wanted to allow the Oversight Board to mandate streamlining the Commonwealth bureaucracy through layoffs. This power is likely to add scores of government workers to the unemployment lines. Suffering already extraordinary high unemployment rates these, discharged workers will have little choice but to join the tens of thousands of Puerto Ricans who are leaving the island annually for better opportunities.
This bill’s proponents are more than willing to blame Puerto Ricans for their debt woes and attribute the financial calamity on a perversion of self-rule. And yet, the bill’s proponents ignore the federal government’s role in this catastrophe. Puerto Rico didn’t spiral into debt alone. In 1996, Congress eliminated a federal tax (Section 936) that quashed the island’s manufacturing economy, leading to the loss of tens of thousands of jobs and an ever shrinking local tax base.
Puerto Rico’s debt crisis and Washington’s proposal to fix it are saturated with political as well as economic consequences. Effectively, the bill creates a five-member Leviathan – an unelected and undemocratic super-regime thrust atop the existing Commonwealth government and it supplants the island’s supposed autonomy under the 1952 Constitution. It was none other than the federal government that upheld Puerto Rican autonomy and petitioned the United Nations to remove Puerto Rico from its embarrassing list of non-self-governing territories. It is rather clear that this autonomy was a expedient charade. In the words of José Trías Monge, a former chief justice of the Commonwealth’s Supreme Court, Puerto Rico remains the “Oldest Colony in the World.”
These conditions translate into a venomous investing climate, a shrinking tax base, and exacerbate the conditions goading tens of thousands of Puerto Ricans to migrate to the US mainland.
Amílcar Antonio Barreto is an associate professor of political science, international affairs and public policy at Northeastern University. He is also the director of its MA Program in International Affairs.