What Ails Puerto Rico

For better or worse, Puerto Rico rarely enters American public consciousness these days. But in recent weeks, the U.S. territory of around 3.5 million people has suddenly garnered considerable media attention from its massive fiscal and economic problems, namely in the form of $72 billion in debt — an unfathomable amount of money for any jurisdiction of its size to pay back.

While officials and analysts debate the island’s options, many are rightly looking at the structural and political problems — namely its status as a U.S. territory — as the underlying causes for this looming crisis (along with the local government’s corruption and mismanagement, to be sure). As a recent article from the New York Times observes.

Puerto Rico’s illness is a chronic condition. The unemployment rate, poverty rate and median household income have always been far worse than any state’s. The main cause is inequality. Residents cannot vote for president or senators, and have one nonvoting delegate in the House. It is disheartening to see many self-styled progressives, who otherwise speak eloquently about the importance of voting rights, go silent on this subject when it comes to Puerto Rico.

Congress routinely treats Puerto Rico and the other territories worse than it does the states. Consider Medicaid, which provides health insurance for the poor. Federal funding for a state Medicaid program is open-ended, but capped for Puerto Rico. The $1 billion in annual Medicaid funding that Puerto Rico receives from Washington is about 20 percent of the $5 billion received by similar-size Oregon. Puerto Rico is also treated unequally under Medicare, even though my constituents pay the same federal payroll taxes that fund much of this program. The Affordable Care Act — Obamacare — has been the subject of partisan debate, but the law’s rarely mentioned defect is that the territories are barred from most of its new programs and protections.

The list goes on. Puerto Rico is excluded from the Supplemental Security Income program that aids the most vulnerable Americans. It does not participate in the federal nutrition program, instead receiving a block grant that shortchanges it by $450 million a year. Puerto Rico is partly excluded from the child tax credit and fully from the earned-income tax credit, which encourages low-income individuals to seek employment. Unlike a state, Puerto Rico cannot authorize its public enterprises to seek relief under Chapter 9 of the federal bankruptcy code, which impedes its recovery.

Though the author believes statehood is the solution to resolving most of these inequities (and indeed, most Puerto Ricans seem keen on this path), another piece in Al Jazeera echos the diagnosis, showing just how entrenched and severe the territory’s problems are.

For too long, Puerto Rico’s status quo advocates in government have heralded that tax incentives to the commonwealth as boosts for economic growth. But it’s a rigged system where profits made on the island are transferred back to the mainland, nationalists have maintained. In fact, in 2011 it was reported that as much as $1.38 trillion in corporate revenues from Puerto Rico were pirated away to places such as the Cayman Islands. And that this makes it more difficult for natives to complete.

“While the big business of the U.S. is growing in Puerto Rico, small businesses have to close”. Puerto Rican independence activist and one-time political prisoner, Elizam Escobar, told me in a phone interview. “Corporations are making more profit and the native economy can’t survive”.

U.S. laws have also undermined Puerto Rico’s global competitiveness. For example, the Merchant Marine Act of 1920 prohibits non-American ships from carrying goods between the island and U.S. mainland, which hinders growth by raising transportation costs and making it too burdensome for the island to have import-export relationships with other countries. In fact, both the editorial board of the New York Times and the conservative Heritage Foundation agree the regulations for Puerto Rico should be relaxed. Yet previous attempts to pass reforms in Congress have failed.

….

Furthermore, despite the belated media interest, Puerto Rico’s economic problem has been brewing for some time. The last 20 years have seen more manufacturing and tourism diverted from Puerto Rico, which is party to NAFTA and other U.S. free trade agreements, to other Latin American economies, and attempts to stem that flow have been ineffective. The manufacturing sector shrank by 4.5 percent from 2007 to 2012. And its unsustainable economic model has caused problems before. In May 2006, the government was forced to shut down for two weeks due to a $740 million budget shortfall, leaving 100,000 workers out of work.

Taken together with the Times’ assessment, it is clear that Puerto Rico has been dealt a very bad hand by U.S. policy. But while many can agree on the causes, the Al Jazeera article but prescribes a very different cure.

It is finally time for Puerto Rico to break free. Independence would allow Puerto Ricans to directly address their economic woes, but, perhaps more important, it will grant the island’s 3.5 million inhabitants the right to determine their own destiny. On July 9, the U.S. Court of Appeals in Boston ruled that Puerto Rico couldn’t restructure its own debt. Puerto Rico’s status as a U.S. territory bars the island from requesting bailout funds from other development banks. Independence, nationalists argue, would allow the commonwealth to make these and other autonomous choices.

Political options for Puerto Rico remain limited. Statehood is still a pipe dream: Republicans in Congress would never allow the 29th largest territory to be a majority non-white, debt-burdened island of Spanish-speakers. And while previous plebiscites have shown that independence remains unpopular among many Puerto Ricans, activists contend that the deteriorating living conditions on the island will lead to unrest and further influx into the United States.

Congress has largely ignored calls for reconsidering Puerto Rico’s status. But the deepening political and economic turmoil may now change that. Puerto Rico’s fate is also likely to generate interest in the run up to the 2016 presidential elections. Some candidates have already commented on the bankruptcy plans to the ongoing crisis. A spokesperson for Florida senator and Republican presidential hopeful, Marco Rubio, whose state is home to many Puerto Ricans, said, “He’s in the process of reviewing the [bankruptcy] legislation to make sure it is the right approach to begin addressing Puerto Rico’s debt crisis without having any negative impact on American taxpayers”.

For decades, Washington treated Puerto Rico’s independence activists as fringe outfits and associates of radical insurrectionist movements. And activists have been hobbled by a public fear that shedding relationship with the U.S. would invite more trouble into the island. As a result, the Puerto Rican Independence Party, for example, has only one member in the commonwealth’s legislative assembly.

After all, the federal government handles Puerto Rico’s basic services, such as the mail and its welfare system. A new nation would have to build all these agencies and develop a new currency from scratch. Yet, they’re not alone: From Greece to Scotland to Catalonia, anti-austerity politics across Europe is increasing support for greater national sovereignty.

So either Puerto Rico becomes America’s newest state or emerges as the world’s newest sovereign nation. Either option is a major game changer, and one or the other seems inevitable, given the extent severity of the crisis. What are your thoughts?

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2 comments on “What Ails Puerto Rico

  1. These are deeply entrenched issues. The problem addressed here on how big business has been favored for decades by the American government in PR to the detriment of small business and individual citizens is the same as in any state, but Puerto Rico has more Walmarts per capita (and this is shown to have the effect of lowering wages in general wherever it happens) and other American department stores than ANY OTHER PLACE on Earth. THIS is the result of disenfranchisement. It’s much more difficult to battle against Big Businesses and their lobbies–whose money governs our government–when one is a territory with no vote at the federal level.

    Ultimately, as usual the problem here is too much money in politics, made worse by institutionalized racism and colonialism. And it’s an embarrassment when we consider how America flaunts its supposed title as “leader of the free world”. One need only look at Puerto Rico to understand that it is not. Wealthy interests are the true leaders of the world.

    As for independence, there’s a reason why it’s not popular: that would require the possibility of self-sufficiency. I just don’t see it happening. Too many decades of dismantling the middle class in Puerto Rico, and a perpetual hemorrage of capital out of the island via American models of consumerism and “development”, have left the island on its knees, unable to support itself.

    A whole new economic model will take decades to develop, and is unlikely to be other than some variety of business as usual. It will likely have to include building renewable energy infrastructure to replace the oil cartel’s model, which requires the island to import foreign oil at prices it can’t control. A huge portion of PR’s debt is PREPA’s (the public energy company there). The new economic model will also have to incorporate the repeal of the abhorrent Jones Act, which will invigorate PR’s role in international trade. These solutions don’t require a political status change, but there are still many other moral reasons for one.

    • Thanks for weighing in with such an excellent insider account of the problem. It is clear that the problems the island faces go well beyond political status, as you noted (though things like repealing the Jones Act would definitely help).

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