Puerto Rico’s debt crisis: UN expert warns human rights cannot be side-lined

10 January by Juan Pablo Bohoslavsky

For several years, Puerto Rico has been facing a serious financial, economic and social crisis. Currently, the island, a territory of the United States of America is no longer able to serve fully its public debt of about 71.5 billion USD. |1|

In order to contribute to a solution of Puerto Rico’s debt crisis, the US Congress established in June 2016 a Financial Oversight and Management Board for Puerto Rico. |2| The seven-member Board was not only established to assist in the restructuring of Puerto Rico’s public debt, but was also entrusted with the power to approve Puerto Rico’s fiscal plan determining the islands’ future financial policies.

Ensuring financial stability, controlling public debt and reducing budget deficits are important tasks. There is also widespread agreement that fiscal management, financial transparency and tax collection needs to be improved in Puerto Rico. Yet, achieving these goals should not happen at the expense of human rights.

In this context, in May 2016, I requested an official invitation from the United States of America to be able to carry out a fact-finding visit to Puerto Rico. In September 2016, together with other United Nations human rights experts covering the rights to food, health, and housing, we also raised several concerns in a letter about the situation in Puerto Rico. I would like to thank the Government of the United States of America for its brief reply dated 19 October 2016 and I look forward to receiving substantive responses to our questions from the competent authorities in Washington DC and San Juan, and from the Financial Oversight and Management Board. As the issues raised in our letter remain a matter of concern, and a new fiscal plan is due to be approved before the end of this month, I have decided to make my concerns public.


Puerto Rico needs sufficient debt relief

The Financial Oversight Board has the delicate task of overseeing a debt restructuring for Puerto Rico through a timely, fair, efficient and transparent process. The aim must be to bring Puerto Rico’s public debt down to levels that are not only financially, but also socially sustainable. The Board must ensure that economic, social and cultural rights are not undermined by giving absolute priority to creditors’ rights and by imposing excessive austerity.

The economy should serve the people, not vice versa. The population in Puerto Rico cannot be held hostage to past irresponsible borrowing and lending. Losses need to be fairly distributed. This means that bond Bond A bond is a stake in a debt issued by a company or governmental body. The holder of the bond, the creditor, is entitled to interest and reimbursement of the principal. If the company is listed, the holder can also sell the bond on a stock-exchange. holders, including hedge fund investors, also need to take their fair share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. . Hedge fund investors – which hold a significant part of the territory’s municipal debt – are also bound by the principles of good faith, debt sustainability, co-responsibility and human rights.


Puerto Rico cannot afford further austerity

After 10 years of economic depression, further spending cuts will not assist economic recovery, but rather undermine the provision of essential public services in the fields of health care, education, and social security.

Austerity measures implemented in Puerto Rico have included tax increases, salary freezes, suspension of collective bargaining agreements, and a reduction of more than 27 per cent of government employment since 2008. They have deepened the economic recession, caused higher unemployment, accelerated emigration from the island, reduced tax revenues and resulted in a downward spiral of fiscal and economic contraction.

Nearly 10 per cent of all Puerto Ricans have left the island in search for a better life in the mainland of the United States, usually younger people leaving behind an increasing aged and destitute population. During the last decade, economic inequality within Puerto Rico has increased significantly and is currently greater than in any other US state. Almost half of all persons in Puerto Rico live below the official poverty line, also a rate much higher than in any other state of the United States. It is estimated that 70 per cent of single parent households and 57 per cent of children are affected by poverty.

Puerto Rico’s future fiscal plan needs to prevent further harm to an increasing number of people living in a situation of vulnerability. Planned reform measures must ensure the rights to health food, housing, and social security are not further undermined.

I am concerned that the Financial Oversight and Management Board is of the view that fiscal consolidation requires further substantial cuts on education and health care. |3| While it is necessary to focus on reforms that improve service delivery and safe public funds, experience shows that there are limitations to what can be achieved without undermining the rights to education and health. The ability of health and education systems to off-set spending cuts through efficiency gains is limited. Any reforms should be made carefully, have a realistic time span, and prevent that accessibility, affordability and quality of public services are further undermined.

I therefore welcome the views expressed by the US Secretary of the Treasury, that a credible debt restructuring is necessary to remove the overhang of uncertainty on the economy and to create a breathing space for Puerto Rico to implement growth-enhancing reforms. Insufficient debt restructuring, based on unrealistic growth assumptions should be prevented. I share as well his view that excessive reliance on fiscal austerity would be self-defeating to growth and debt sustainability, in particular in extended periods of economic contraction. |4| In the current situation adequate funding for vulnerable constituencies and the delivery of essential services is not only critical to curb outmigration and to preserve the tax base, but also required to ensure protection of core economic and social rights of the people in Puerto Rico.


Right to health

I am particular alarmed about the deterioration of the public health care system in Puerto Rico, which is not only struggling to absorb spending cuts, but also has to cope with an unprecedented emigration of medical doctors. In addition, Puerto Rico has faced a Zika virus outbreak that has endangered up to one fifth of the island’s population, and financial constraints have complicated the timely and comprehensive response to prevent the outbreak. |5|

On average, every day one physician is leaving the island to resettle in the US mainland as disparities in earnings for medical professionals are high. Puerto Ricans are at risk of losing access to both primary health care physicians and specialists, while an increasing number of hospitals floors are closing. Public health insurance schemes to ensure affordable access to health care for persons with low-income are currently only kept running by funds provided under the Affordable Care Act, but these funds are expected to expire by the end of 2017.

If no solution can be found soon, many Puerto Ricans may be left without any health insurance with serious adverse impact on their right to health.

Compared to US states, the Commonwealth of Puerto Rico receives less federal support for its public health care insurance schemes for low-income families. According to some estimates, decades of federal under-funding of Medicaid and other health care schemes have contributed to the built-up of about one third of Puerto Rico’s public debt, as the territorial Government of Puerto Rico issued bonds to compensate for the shortfall of federal funds to meet its public health care obligations.

I therefore welcome that the Congressional Task Force on Puerto Rico has recommended in its report issued on 20 December 2016 fairer federal funding for health care schemes and more tax credits for families. |6| Reducing the tax burden for families with children would be one of the many measures required to combat intolerable levels of poverty on the island.


Situation of persons with disabilities

The debt crisis in Puerto Rico has also put a spotlight on discriminatory policies affecting persons with disabilities. For 40 years, the US Congress has refused to give residents in Puerto Rico the same financial support it provides to persons with disabilities in the 50 states under the federal Supplemental Security Income programme (SSI). Persons with disabilities in Puerto Rico are excluded from this programme and have to rely on more limited support provided through the federal Aid to the Aged, Blind, or Disabled Programme. They receive on average only USD 74 for monthly living expenses, while residents in the US States receive on average USD 540 in support. |7|

Actual costs of living do not justify such huge differences in public support. Under international law the United States of America remains responsible for ensuring that the social rights of all individuals living under its jurisdiction are fully protected. Federal programmes should neither directly or indirectly discriminate against persons living in Puerto Rico by providing significantly reduced financial support per eligible recipient for various social and health care support schemes.


Rights to food and adequate housing

I am concerned that basic necessities are slipping out of financial reach for many residents. The right to adequate food implies that it must be economically accessible without compromising any other basic needs. According to official figures, 37.7 per cent of Puerto Rican households receive food stamps to assist them purchase food. Schools are paying a significant amount of their funds to provide school children at least with one decent meal. Puerto Rico has closed already 150 schools, but it is anticipated that this number will grow to nearly 600 over the next five years, closing almost half of the Island’s public schools, far more than the emigration of families with children would suggest.

During the last decade, foreclosures have almost doubled and there have been concerns about an increasing number of residents who, unable to pay their utility bills, face eviction orders and disconnection of electricity and water services. Puerto Rico Legal Services, which works to provide legal aid to people living in poverty, including in relation to evictions, custody disputes, and other civil matters, has reportedly been forced to lay off 56 of its 288 employees in response to the budget cuts. |8|


Rights to social security and just and fair conditions of work

I am also worried about proposals by the Financial Oversight Board to downsize labour standards, including regulations related to severance pay, flexible scheduling, employee retention and vacation days and pensions. |9| Such reforms have in many instances not resulted in increased employment or economic growth, but undermined workers’ rights and increased the number of persons employed in underpaid and insecure work. |10|

Puerto Rico’s largest public pension system is expected to run out of money in two years and the islands three pension schemes have reportedly a funding gap of USD 43 billion. I am therefore concerned about how future pensions can remain at adequate levels to ensure that all older persons can enjoy a life in dignity.


Right to participation in public affairs

I welcome that the Financial Oversight and Management Board invited the public to provide comments on the Fiscal Plan presented by the Government of Puerto Rico and published all comments received. It is absolutely necessary that the affected population is not only consulted, but that citizen can decide on important economic reforms touching their future through democratic procedures. The right to participation in public affairs is a core human right that should not be undermined by technocratic decision making bodies that are not subjected to control and accountable to those who are most affected by their decisions. This makes it even more important to ensure that members of the Financial Oversight and Management Board are fully independent and do not incur any conflict of interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. .


Austerity and human rights

Austerity measures adversely affecting the enjoyment of economic, social and cultural rights are only permissible in exceptional circumstances, if they are unavoidable, of a temporary nature and are applied in a non-discriminatory manner. They need always to be justified and are only compliant with international human rights law if no other policy alternative is available that would ensure a better protection of relevant rights. |11| In the context of Puerto Rico meaningful debt relief needs obviously to be considered first.1 |12|

Fiscal consolidation measures must ensure the protection of individuals and groups in situation of vulnerability and shall never violate core human rights obligations. One of these core obligations is that States should establish minimum wages that are non-discriminatory and non-derogable, and indexed to the cost of living so as to ensure a decent living for workers and their families. |13| This needs to be considered when a potential reduction of the minimum wage in Puerto Rico for workers under 25 year of age is contemplated.

States are furthermore required to undertake an independent and robust human rights impact assessment before implementing fiscal consolidation or structural reform measures that have the potential to affect seriously the enjoyment of various rights. |14| In addition, it is necessary that a comprehensive debt audit is completed. While the territorial legislature has established a Commission to audit Puerto Rico’s public debt in July 2015, with insufficient funds the Commission has struggled to conduct its work.

Many people within the United States of America are concerned about the situation in Puerto Rico. The deterioration of economic, social and cultural rights in Puerto Rico has also been raised earlier this year at a public hearing before the Inter-American Commission on Human Rights. |15| On 19 May 2016, I requested an invitation from the United States of America to carry out an official fact-finding visit to the island. My aim is to contribute to human rights compliant solutions to the serious financial and fiscal challenges the island is facing. I hope that such a visit can be realized in the near future.


This statement has been issued by the Independent Expert on the effects of foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights. Mr. Juan Pablo Bohoslavsky.

It has been endorsed by Special Rapporteur on the right to food, Ms. Hilal Elver; the Special Rapporteur on the right of everyone to the enjoyment of the highest attainable standard of physical and mental health, Mr. Dainius Pūras; the Special Rapporteur on adequate housing as a component of the right to an adequate standard of living, and on the right to non-discrimination in this context, Ms. Leilani, Farha; and the Special Rapporteur on the rights of persons with disabilities, Ms. Catalina Devandas Aguilar.


Source: United Nations Human Rights Office of the High Commissioner


Footnotes

|1| See Commonwealth of Puerto Rico, Financial Information and Operating Data report, 18 December 2016.

|2| Puerto Rico Oversight, Management, and Economic Stability Act, 48 USC 2101.

|3| See Letter of the Financial Oversight and Management Board of Puerto Rico, to the Governor and Governor-elect of Puerto Rico, dated 20 December 2016.

|4| See Letter of the United States Secretary of the Treasury to the Chairman of the Fiscal Oversight and Management Board for Puerto Rico, from 16. November 2016.

|5| See the update by the White House on the humanitarian crisis in Puerto Rico, 19 April 2016.

|6| Congressional Task Force on Economic Growth in Puerto, Report to the House and Senate, 20 December 2016.

|7| See for example Robin Respaut, Deserted Island: The disabled in Puerto Rico fend for themselves after decades of U.S. neglects, Reuters, 9 December 2016 at www.reuters.com/investigates...

|8| See footnote 5 above.

|9| Ibid.

|10| The Independent Expert will be presenting a thematic report on labour rights in the context of structural adjustment policies to the forthcoming session of the Human Rights Council in March 2017.

|11| See Statement by the Committee on Economic, Social and Cultural Rights on public debt and austerity, UN Doc. E/C.12/2016/1.

|12| See as well my report to the General Assembly, UN Doc. A/70/275, available at: www.undocs.org/A/70/275.

|13| See CESCR, General Comment No. 23, para 65, UN Doc. E/C.12/GC/23.

|14| See UN Doc. E/C.12/2016/1, footnote 11 above, para. 11.

|15| Inter-American Commission on Human Rights, Report 157 period of sessions, 2 to 15 April 2015, p. 13.

Author

Juan Pablo Bohoslavsky

Independent Expert on the effects of foreign debt and other related financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights


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