(Photo: AP/Ricardo Arduengo)
A recently enacted rescue package to address the fiscal crisis in Puerto Rico goes by the name PROMESA, or promise, but the debt-relief plan is not a good deal for the Puerto Rican people.
President Barack Obama signed the bipartisan Puerto Rico bill into law just one day before a July 1 deadline for the island to make a $2 billion debt payment. Puerto Rico's government had said it would be unable to make yet another payment, just the latest in a string of defaults on the island's $70 billion in unpaid debts.
The rescue package won strong bipartisan majorities on Capitol Hill, but the 3.5 million U.S. citizens in Puerto Rico have little reason to celebrate.
That's because at its core, PROMESA-officially the Puerto Rico Oversight, Management and Economic Stability Act-is more focused on ensuring that the wealthy bondholders get paid than it is on addressing the island's soaring poverty and unemployment, which stands at 14 percent.
The bailout package actually takes power away from the Puerto Rican government by creating an unelected, seven-member Fiscal Control Board that will review and approve any "balanced" budget that the island's government creates. Only one of this board's members is required to reside in Puerto Rico. The plan protects the island against litigation by its creditors, but does not do enough to prevent default.
If the budget is not balanced, the newly established control board will have the power to consolidate government agencies, sell government assets, and fast-track legislation to "boost" the economy, regardless of its environmental effect on the island. Moreover, the legislation calls for a minimum-wage reduction to $4.25 an hour for people younger than 25, and exempts Puerto Rican employers from the Obama administration's new overtime mandates.
All of these comes on top of a string of already-extreme austerity measures that have been imposed on Puerto Ricans by some of the investors who have sat at the table during negotiations with the government of Puerto Rico.
These measures have forced Puerto Rico to close more than 150 schools; withhold payment to special needs providers; cut off electricity to hospitals; cut indigent legal services in half; and deplete employee pension funds-all in the name of paying the bondholders.
Puerto Rican families are leaving the island at a record rate, with reports of two planeloads departing per day full of people who have no intention of returning.
To add insult to injury, the government has raised the sales tax on all Puerto Ricans to 11 percent, one of the highest rates in the nation, while changing its tax structure to lure hedge fund millionaires and billionaires to the island with the promise that they need not pay taxes if they reside and invest in Puerto Rico.
That's what made Puerto Rico so attractive to begin with to all the bondholders now lobbying to get their money back. Over the past ten years, several hedge fund and mutual fund investment companies saw an opportunity to buy risky government bonds at very low prices, and to charge full price for them, as they have in Argentina and Greece. Some of those bonds were bought for as little as 30 cents on the dollar. According to a new report released by the Refund America Project, dubbed "Puerto Rico's Payday Loans," a full $33.5 billion of the island's supposed debt is actually interest on $4.3 billion in high-interest loans. That's the equivalent of buying a house at an interest rate of 785 percent.
PROMESA does not give any economic incentives to the people of Puerto Rico. Even worse, the legislation permits control board members to accept gifts, a troublesome provision that all but invites the same hedge funds managers who created the crisis to look for shady ways to influence control board members to act in their favor.
All of these provisions set Puerto Rico up for a debt restructuring marked by continued austerity, and that burdens working people while benefiting the wealthy.
So why PROMESA? Democrats on Capitol Hill have said that the package was the only way to prevent fiscal collapse in Puerto Rico. The new law does give the government some breathing room by placing a moratorium on any debt and on creditor litigation. But with no economic incentives, Puerto Rico will be forced to continue cutting services and jobs to repay its debt.
Last June, Puerto Rican Governor Alejandro García Padilla announced that the island's government could not pay its debt. As a territory, Puerto Rico did not have the option of declaring bankruptcy, and was forced to negotiate directly with investors.
The island's undefined colonial relationship with the United States has also made it subject to congressional oversight, and has blocked Puerto Rico from negotiating trade agreements with other nations, or from receiving all of the benefits of being a state. Over the past 30 years, Puerto Rico has phased out several tax incentives that had promoted economic growth. The absence of these incentives sparked an exodus of companies to cheaper locations. At the same time, government leaders for many years turned a blind eye to the impending debt crisis, passing the buck from one administration to the next.
Puerto Ricans, who will continue to go hungry while investors are lured to the island by "low taxes," reject PROMESA. A recent poll by El Nuevo Día found that 51 percent of people said that they did not support this legislation. All the current candidates running to replace Padilla as governor have opposed the bill. An active civil disobedience camp in front of the federal court in San Juan has pledged to stay there until the Fiscal Control Board is dismantled. All this makes PROMESA look like an empty promise.
