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Puerto Rico In the Hoc

Daniel Orsini Aug 5, 2015

In July, Puerto Rico’s Governor Alejandro García Padilla declared the island’s $72 billion debt “unpayable” and called on the U.S. government and Puerto Rico’s creditors to negotiate debt relief and other measures to restore Puerto Rico’s economic viability.

The island is undergoing the worst economic crisis in its history. And in a Western Hemisphere replay of the debt crisis strangling Greece, attempts by Puerto Rico’s government to stabilize its economy through a combination of harsh austerity measures and further borrowing has created a vicious cycle that chokes off economic growth, which only makes the debt overhang bigger.

Among the cutbacks and other measures imposed by Garcia’s Popular Democratic Party (PPD), which is aligned with the Democratic Party in the United States, are massive closures in the public school system; a sales tax increase from 7 to 11.5 percent; the rollback or elimination of public-sector pensions; cuts in teachers’ health care benefits; an increase in the tax on a barrel of oil from $9.25 to $15.50; and steep increases in water and electricity bills.

Puerto Rico’s gross national product has fallen on average by 2 percent each year for the last eight years. Some 270,000 jobs have been eliminated. Almost 200,000 people fled Puerto Rico from 2010 to 2013, leaving its population at 3.6 million. Most of them moved to the U.S. mainland, and of the 8 million Puerto Ricans, there are now more in the diaspora than on the island. 

The government’s austerity measures amount to an all-out offensive in the war against working-class people in Puerto Rico. But make no mistake: the colonial government is merely a “front man” for corporate America and the wolves of Wall Street, which have been extraordinarily successful at compelling a string of governors to implement various neoliberal packages during the past two decades.

Puerto Rico’s Shock Doctrine

The year was 1993, and the pro-statehood New Progressive Party (PNP), which is aligned with the U.S. Republican Party, was in power. The governor, Pedro Rosselló González, was the most neoliberal leader the island had ever had, and he implemented dramatic changes in the colonial government and society.

Puerto Rico used to have a relatively robust public health system that depended on infrastructure all across the island. It was fairly accessible and affordable. If a person got sick, they could simply go to the hospital and get treated — no insurance card needed. Governor Rosselló privatized the whole system, selling off hospitals at almost half their market value and issuing the island’s residents private insurance coverage paid for out of public revenue (something like Obamacare). Nowadays, the Puerto Rican health system is on the edge of collapse. Doctors are fleeing the island, which is further raising the cost of health care, and the government’s constant scramble to keep up with its health care bills has the entire system sinking in quicksand.

In 1998, the PNP government privatized what used to be one of the island’s wealthiest public corporations: Telefónica de Puerto Rico (Puerto Rico Telephone). Telefónica’s militant unions waged a fierce battle to maintain the company as a public asset, enjoying active solidarity from many unions in both the public and private sectors, as well as university students and the public generally. The telephone workers organized a 41-day strike that became known as “La Huelga del Pueblo” (The People’s Strike), but it was squashed with a heavily repressive governmental response that paved the way for the company’s privatization.

In 1999, Rosselló cut $40 million from the University of Puerto Rico’s budget. His administration also passed “Ley 40” (Law 40), which represented a broad attack on the rights of public-sector workers. In 2008, the governor used the provisions of that law, which made it illegal for teachers to go on strike, to decertify the grassroots Federación de Maestros teachers union after a 10-day strike.

Rosselló wasn’t the first or the only governor to implement neoliberal policies, but until he took power, no one had done it so effectively or widely. Rosselló’s neoliberal “reforms” contributed $10 billion in debt to the current $72 billion debt crisis.

Rosselló’s rule ended in January 2001 and the PPD won the next two gubernatorial elections. The party continued to advance the neoliberal agenda but in a more populist fashion. The successive PPD administrations of Sila María Calderón Serra, the first woman elected governor of Puerto Rico, and Aníbal Acevedo Vilá added to Puerto Rico’s debt by $13.3 billion and $10.1 billion, respectively.

When the PNP returned to power in 2009, Governor Luis Fortuño Burset quickly became a contender for Pedro Rosselló’s legacy as the island’s foremost neoliberal heavyweight. Fortuño was a card-carrying member of the U.S. Republican Party and public admirer of Milton Friedman. He held up Ronald Reagan as the best president in U.S. history. 

Fortuño’s most striking neoliberal maneuver was the “Special Law Declaring a Fiscal State Emergency and the Establishment of an Integral Plan of Fiscal Stabilization to Save Puerto Rico’s Credit.” No one in Puerto Rico knew the law by this ridiculous name — Puerto Ricans just called it “La ley 7” (Law 7).

Law 7 resulted in the dismissal of 30,000 public employees, the freezing of all collective bargaining agreements in the public sector, massive tax credits for corporations and more. Fortuño’s contribution to the debt was the most generous of all — he added as much to the debt as the previous two PPD governors combined: $23.4 billion. By the time he left office, the debt of Puerto Rico stood at $70 billion.

Last but not least, the current neoliberal in the the governor’s mansion is Alejandro García Padilla. He represents the PPD’s most conservative wing and has distinguished himself through his poor leadership, his marriage to the interests of national and international capital and his shameful acceptance of the notion of Puerto Rican “democratic self-government” under the terms of U.S. military occupation.

His victory in the 2012 election was based on the logic of “lesser evilism.” A lot of independentistas (people who support Puerto Rico’s political independence), nonpartisans and even the PNP’s working-class militants joined together to defeat Fortuño’s bid for reelection. But the honeymoon with García Padilla was short-lived. In a telling move, a few weeks after his inauguration, García Padilla consummated Fortuño’s efforts to privatize the island’s international airport.

The Greece of the Caribbean

Alejandro García Padilla’s rule has coincided with the most far-reaching economic crisis ever seen on the island. For good reason, Puerto Rico is now known internationally as “the Greece of the Caribbean.” Its situation, though, is unique. 

Puerto Rico’s debt is roughly $72 billion, which amounts to nearly 70 percent of its GDP. Greece’s debt stands at 177 percent of GDP.Besides the gap in their debt proportions, there are other significant differences to take into account. Since 1898, the year that the U.S. Navy bombarded Puerto Rico and began the occupation that continues to the present day, the island’s economy has existed to serve the military, political and economic interests of the U.S. empire. For example, Puerto Rico imports more than 80 percent of its consumer goods from the United States. 

The Jones Act passed by the U.S. Congress in 1920, meanwhile, requires that all shipping to and from U.S. ports be conveyed by U.S. vessels and crews. As Nelson Denis, author of War Against All Puerto Ricans: Revolution and Terror in America’s Colony, explained in a recent blog post:

This includes cars from Japan, engines from Germany, food from South America, medicine from Canada — any product from anywhere. In order to comply with the Jones Act, all this merchandise must be off-loaded from the original carrier, reloaded onto a U.S. ship and then delivered to Puerto Rico. It all makes as much sense as digging a hole and filling it up again. This is not a business model. It is a shakedown. It’s the maritime version of the “protection” racket.

As a result, Puerto Rico’s imports cost at least twice as much as neighboring islands’.

Added to this burden, Puerto Rico can’t establish trade relations with other countries without U.S. permission. A few years ago, former Venezuelan President Hugo Chávez offered Puerto Rico a generous deal that would have brought a steady flow of Bolivarian crude oil to the island on very favorable terms. It didn’t take long for the U.S. Congress to forbid such an arrangement.

The structure of the debt itself also distinguishes Puerto Rico from Greece. Puerto Rico’s lack of sovereignty means that it cannot secure loans from the International Monetary Fund or World Bank. As a result, its debt takes the form of lines of credit and bond issues traded on the open market. In June 2015, Fortune magazine reported that more than 50 percent of the island’s debt is owned by vulture funds. The vultures have a take-no-prisoners strategy for the island, taking advantage of its economic crisis to buy up debt for cheap and pushing for severe austerity policies in order to profit.

But perhaps the starkest difference between Greece and Puerto Rico at the moment is the character of the ruling political party. The agreement of Greek Prime Minister Alexis Tsipras to a new round of austerity measures has left the people of Greece and the international left with a bitter taste of betrayal after the historic July 5 referendum against austerity. Yet trying to compare Tsipras’ left-wing Syriza government with García Padilla’s PPD government would be like comparing Chile’s former President Salvador Allende to Augusto Pinochet, the general who overthrew him in a coup.

While Syriza members are arguing in workplaces and communities for social revolt against austerity, García Padilla commissioned former IMF official Anne Krueger to issue a report on the island’s economic situation and to propose solutions to the debt crisis. In keeping with the IMF’s record of further impoverishing poor countries around the world with its programs of “structural adjustment,” the Krueger report prescribes the same bitter medicine to “improve” Puerto Rico’s economic  health: restoring competitiveness by lowering labor costs, including eliminating the federal minimum wage and other deregulation of labor markets; cutting federal welfare payments because they are “too generous” relative to Puerto Rico’s low wages; allowing private companies to compete with the public sector in generating electricity while keeping public electrical transmission and distribution, which are the least cost-effective sectors of the energy industry; reducing subsidies for the University of Puerto Rico; and cutting Medicaid benefits in excess of minimum standards on the U.S. mainland.

If Puerto Rico decides to impose the utterly predictable economic policy proposals of an IMF veteran like Anne Krueger, the island will most definitely follow Greece’s path toward an ever-greater debt crisis. If the people of Puerto Rico, including those who have recently fled in search of a better life, don’t want the island’s destiny placed in the hands of vulture-fund managers, transnational corporations, the United States and its colonial puppet government, we must fight as the Greek people have been.

This article was adapted from an earlier version that appeared at

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