Colonial Capitalism and Puerto Rico’s Odious Debt

31 May by José A. Laguarta Ramírez

A vulture puppet is held at a protest against Puerto Rico’s credit holders as a symbol of the so-called vulture funds. | Photo: EFE

The Puerto Rican government should confront colonialism head on and demand true negotiations rather than obey Washington’s dictates on debt repayment.

The Natural Resources Committee of the United States House of Representatives gave the green light on May 25 for the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) to be considered by the House in full.

The bill, which would impose a federal oversight board and allow court-supervised restructuring of part of its $73 billion debt, has been stalled due to objections by both Republicans and Democrats. While the reasons given are different, both sides insist they want President Barack Obama to sign PROMESA into law before $1.9 billion’s worth of Puerto Rico general obligation bonds come due on July 1. Puerto Rico’s government has already partially defaulted three times within the past year (most recently on May 1), although not on general obligation bonds, which Puerto Rico’s colonial constitution dictates must be repaid before any other public spending is authorized for the following fiscal year.

In international law, the term for debt incurred by colonial, corrupt, or authoritarian regimes is odious debt, a characterization that allows for legitimate refusal of repayment. A prominent example of its application was the condonation of Cuba’s debt when that country achieved its independence from Spain following military intervention by the United States. At the time, U.S. financiers, to whom most of that debt was owed, understood the benefits to be gained from the financial stability of a nominally independent neo-colony. At the same time, U.S. troops occupied the neighboring island of Puerto Rico, which was quickly declared an “unincorporated territory” subject to the authority of the U.S. Congress and federal courts system, with no voting representation. Although U.S. citizenship was extended to individuals in 1917, and a local constitution was authorized and adopted (not without significant amendments by Congress) in 1952, that colonial juridical reality has remained unchanged.

Most U.S. observers blame Puerto Rico’s debt crisis on “mismanagement” by its local administrators, a conveniently near-sighted view of a situation that is the direct product of ongoing colonialism, in the context of world capitalism. In the mid-1970s, the colony faced the combined effects of a global crisis and the stagnation of the “industrialization by invitation” model inaugurated in the late 1940s. As the island’s comparative advantage as the only low-wage tax haven Tax haven A territory characterized by the following five independent criteria:
(a) opacity (via bank secrecy or another mechanism such as trusts);
(b) low taxes, sometimes as low as zero for non-residents;
(c) easy regulations permitting the creation of front companies and no necessity for these companies to have a real activity on the territory;
(d) lack of cooperation with the inland revenue, customs and/or judicial departments of other countries;
(e) weak or non-existent financial regulation. Switzerland, the City of London and Luxembourg receive the majority of the capital placed in tax havens. Others exist, of course, such as the Cayman Islands, the Channel Islands, Hong Kong and other exotic locations.
with direct access to the U.S. waned, Washington’s solution was Section 936 of the Internal Revenue Code, which granted federal tax exemptions to U.S. corporations on products made in Puerto Rico, attracting mainly pharmaceutical industries that generated high (untaxed) profits while creating few jobs. The local government, in turn, pursued massive debt-fueled investment in infrastructure, whose use by these industries it heavily subsidized. The resulting debt addiction spiralled out of control in the 1990s, fed FED
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by lenders offering easy credit. Public finances were further undermined by rampant corruption and a renewed economic downturn once Congress began a ten-year phase-out of Section 936 in 1996.

Numerous observers have noted the toll that the crisis has already taken on the population since the onset of the current “fiscal crisis” in 2006. Puerto Ricans once again began emigrating at rates comparable to those of the Great Migration of the 1950s. Compounding the impact of austerity measures enacted on the pretext of alleviating the government’s burden, emigration decimated the tax base and the availability of healthcare professionals, among others. Yet, among other provisions, PROMESA would also slash the minimum wage in Puerto Rico for workers under 25, from the current federally-mandated $7.25, to $4.25 per hour, and significantly scale back the federal supplemental nutrition assistance program on the island. A whopping 54 percent of all Puerto Rican households, regardless of size, currently survive on an income below $25,000 per year, despite a cost of living that rivals that of the most expensive cities in the U.S.

Efforts carried out so far by members of the colonial political establishment and their largely Democratic stateside allies have centered on lobbying Congress to soften the terms of PROMESA by limiting the powers of the oversight board, expanding the possibility of restructuring, or allowing Puerto Rico recourse to Title 9 federal bankruptcy, from which it was inexplicably exempted in 1984. Senator Bernie Sanders, who is seeking the Democratic presidential nomination, has said the oversight board treats Puerto Rico “like a colony.” Sanders hopes his expressions will gain him votes in Puerto Rico’s June 5 Democratic Primary (making his words the ironic understatement of the century, given that this is a contest to select the party’s candidate to a post for which the colony’s residents cannot vote). Such gestures will do little to improve the dire prospects facing most Puerto Ricans. As the New York-based columnist Ed Morales notes, echoing the sentiments of many Puerto Ricans, “What we need is for people to say, we don’t accept the $70 billion debt until it’s properly audited.” Similarly, Puerto Rican political prisoner Oscar López, now serving his 34th year in federal prison on sedition charges, has called on Puerto Ricans to organize in refusal of any further debt repayment. They are right: legal tinkering will only buy breathing room for corrupt local colonial elite that generated the crisis in the first place.

With the needed resolve, the Puerto Rican government could halt all debt payments, refuse to recognize any court decisions to the contrary, and force a true negotiation. To do so, however, would imply confronting colonialism head on and leading Puerto Rico down a new path. If Congressional Democrats fail to deliver a kinder, gentler PROMESA before July 1, it is unlikely that Governor Alejandro García Padilla and his party, which supports the colonial status-quo, will go any further than they already have to stand up to the hedge-fund vultures. A winsome García Padilla clearly stated on May 1 his belief that the Puerto Rican people “don’t deserve” such a political crisis, because they’ve been “loyal American citizens.” Given his track record, it is no stretch of the imagination to expect that he will continue making general obligation payments while negotiating whatever relief it can with groups of creditors, until the end of his term lets him off the hook. In the face of such breathtaking absence of leadership, it is no wonder that many Puerto Ricans are welcoming the imposition of PROMESA’s oversight board. While a peculiarly unabashed imperial and authoritarian twist, it would by no means be a departure from 118 years of colonialism.

One way or the other, we are witnessing the collapse of that status quo, but not necessarily for the better. A movement of the necessary magnitude and force will not coalesce immediately, as a clear consensus about the island’s political future has yet to emerge. However, it is becoming clearer than ever that there are no viable alternatives to independence, with U.S. statehood “farther away than ever,” as one pro-statehood pundit recently lamented. As living conditions continue to deteriorate on the island, and labor markets in South Florida and elsewhere become saturated, powerful social movements that have accrued over the past decade around university students, public school teachers, and communities facing displacement and environmental threats, may yet cohere as the critical mass needed to sustain urgently needed radical alternatives.


Source: TeleSurTV.net


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