Steven Rhodes was recently retained by Puerto Rico to help solve its financial problems. The retired bankruptcy judge who administered the bankruptcy of Detroit, gave a blunt assessment of the debt-laden island.
Rhodes said Puerto Rico “urgently needs our help” and that the nation can “no longer pay its debts, it will soon run out of cash to operate, its resident and business will suffer” (1).
Under US law, Puerto Rico can’t declare it is bankrupt, which makes it significantly more difficult to gain concessions from creditors. With “force-fed” austerity, the island is plagued by dire economic conditions, including poverty, high unemployment and deprivation.
Alejandro Garcia Padilla, the island’s governor, recently announced that the Commonwealth was not able to pay Puerto Rico’s debts and it would try to negotiate a “restructuring” with bond holders. As Puerto Rico is not a municipality, it is not eligible for debt restructuring under the US bankruptcy code.
Puerto Rico’s Crisis
In a televised address, Padilla called for Washington to grant Puerto Rico, which is currently a commonwealth of the United States, the ability to file for bankruptcy. His goal, Padilla said, was to postpone debt repayments for a number of years by instigating a negotiated suspension with bondholders.
Puerto Rico needs a complete restructuring and development plan, comprehensive and inclusive, that takes care of the immense problem we face today, not on a short but on a long-term and definitive basis,” said Padilla (1).
Anne Krueger, a former IMF economist and co-author of the report that has been described as the “playbook for both the Commonwealth of Puerto Rico and its creditors”, reiterated how dire the situation is in Puerto Rico and the need for debt restructuring program (2).
“The needed measures may face political resistance but failure to address the issues would affect even more the people of Puerto Rico,” Krueger warned.
Citizens could face fewer public sector workers, hikes to taxes and the obliteration of the minimum wage, if it followed the report’s recommendations. Garcia Padillo said he would oppose cuts to the minimum wage. Meanwhile the US stands accused of showing no willingness to help Puerto Rico through the crisis (3).
However, the issues with Puerto Rico’s debt crisis are varied and can’t be solved by just one approach. Issues include everything from the inability to collect taxes from residents to the junk status rating of the country, which means they must now pay higher interest rates on any money borrowed (4).
The report by Stephen Lendman notes how Puerto Rico has no control of every aspect of society, including commerce and trade, foreign relations, immigration, nationality, media, agriculture, their own air space and virtually all laws and legal procedures other countries just take for granted.
Likening Puerto Rico to Greece being trapped in the Euro straightjacket, Lenman says Washington is intent on continuing to exploit its Caribbean colony for profit, “raping and pillaging it at the public’s expense” (3).
US Congress has exclusive jurisdiction over Puerto Rico. Local laws can be overturned and residents of the island have no voting representation in Congress. Noting how Puerto Ricans suffer from “internal government mismanagement, political greed and dereliction of duty,” Stephen Lendman wrote:
Puerto Rico’s 3.5 million people live in an open-air prison –exploited under imperial rule” (3).
According to a report in the Huffington Post, despite months of talk between the US and Puerto Rico, the US government seems unlikely to offer the island financial help. “There’s no one in the administration or in D.C. that’s contemplating a federal bailout of Puerto Rico,” said a White House spokesperson.
What are your thoughts about the Puerto Rican crisis? Should the US do more? Is there little the US can do? Comment below.