In 1952 Puerto Rico gained partial autonomy but never became independent nor indeed a US state. Puerto Ricans are US nationals but can only exert the attendant rights if they migrate to the continent. They can vote to elect their governor but not to elect the US president. Their imports are entirely controlled by the United States under a 1920 colonial law, the Merchant Marine Act, which states that all goods imported for Puerto Rico must first be delivered on the continent then forwarded on US boats. Lastly, contrary to all other US local governments, whether cities or states, Puerto Rico cannot declare bankruptcy as did Detroit in 2013 to renegotiate its debt without the threat of creditors legal actions that would not fail to arrive should it default on repayments. In fact it is still a US colony and the recent history of this island oppressed by a staggering debt is evidence enough.

AN ODIOUS AND UNSUSTAINABLE DEBT

Puerto Rico is crushed by a debt of about $73 billion, which in relation to the number of inhabitants is ten times the US average figure. The origin of the debt is the colonial status of Puerto Rico and the US monitoring of this territory that was used as a tax haven for North American investors and companies thanks to a number of tax incentives, among which the notorious threefold tax exemption on Puerto Rican debt securities. [1] The 2008 crisis, the slackening of tourism and the austerity measures taken over the past 15 years are additional elements in the dark picture of the island’s current situation.

The consequences are quite simply disastrous for the population, subjected to a genuine humanitarian crisis as poverty and inequalities get worse. Hundred of schools are closed, hospitals too have to shut down for lack of financial means and staff, emigration to the continental US reaches unprecedented figures (from some ten thousand people a year before 2010 to an average of 48,000 a year between 2010 and 2014), and social security is being dismantled: lower wages, higher contributions, lower rates of health service compensation… Nowadays in Puerto Rico more than half of the children live under the official poverty threshold.

These various elements are evidence enough that Puerto Rico’s debt is odious, because of the island’s colonial status, and is unsustainable considering the deleterious consequences it has on the population. The debt should thus be repudiated by a unilateral act of the Puerto Rican government, who should also take measures to ensure its population’s fundamental rights. Yet this requires a strong, progressive, and even radical political determination that is utterly foreign to the current Puerto Rican government. In the November 2016 national election, the inhabitants, who, as we know cannot vote for the US president, were called upon to elect a new governor, a right-wing representative has come to power with a program to clean up the balance sheets through austerity policies and to achieve statehood within the US union, become the 51^st star on the flag – a proposal in which Trump seemed to be interested during his campaign, but that can hardly be implemented because of the huge debt and because of deep differences in terms of incomes and social protection.

AN ILLEGAL DEBT

The social movements have seized upon the question of the debt. They are calling for an audit that will clearly identify its origins and eventually its odious, illegal, illegitimate or unsustainable nature in order to proceed towards total, or partial, cancellation based on established principals in international and domestic law.

A commission has been set by VAMOS4PR that gathers together civil society organisations, unions, locally elected representatives and ordinary citizens. A preliminary report has already highlighted legal discrepancies in Puerto Rico’s debt. Unfortunately, through lack of means, the Commission has not been able to meet for several months and its work is currently suspended. We can nevertheless retain the primary indications suggesting that a large part of Puerto Rico’s debt is illegal, having been subscribed in contradiction to the island’s constitution. In fact, the constitution imposes that a balanced budget be maintained and prohibits borrowing to cover deficits, allocating more than 13% of the Colony’s revenues to the repayment of debt interests and bond issues of a maturity exceeding thirty years. Nevertheless, Puerto Rico has borrowed up to $30 billion to cover deficits since 1979, current payments represent between 14 and 25% of revenues and the Puerto Rico government practices ’rollover’, as do many of the World’s governments. ’Rollover’ is borrowing to repay previous outstanding capital that has come to maturity. The Commission cites bonds issued to cover capital repayments of debts issued in 2003 that were also issued in order to refinance borrowing that originated in 1987.
These are serious leads for investigation and should be followed up. They are not isolated, other important enquiries are being made into Puerto Rico’s debt situation which points fingers at, among others, the role played by the private banks.

AN ILLEGITIMATE DEBT

It is interesting to see the level of creativity the banks employ in the art of getting rich at others expense. Puerto Rico was given no quarter. Although the Constitution imposes strict conditions on public debt management, the State and the publicly owned enterprises have, with the help of the banks, achieved an absolutely extraordinary level of debt particularly through mechanisms that capitalise interest:

- CABs (Capital Appreciation Bonds): these are bonds whereby the issuer promises reimbursement of the capital borrowed and the whole of the interest at the maturity of the bond. In between time the unpaid interest is capitalised having the effect of increasing the sum of the interest paid over each succeeding, usually annual, period. In the case of Puerto Rico this system has produced very lucrative operations for investors. According to one study, [2] of the $37.8 billion of Puerto Rican CAB debt the initial issue was valued at $4.3 billion. The interest being the rest of the $37,8 billion, that is $33,5 billion profit for the banks, the equivalent of 785% interest! [3]

- Debt refinancing: although prohibited by its constitution Puerto Rico seems to be passed master in the subtle art of rolling over debt, a practice that has reached enormous proportions. Total public and State debt is to the tune of $134 billion, of which , close to half, $51,5 billion was taken on to cover repayments of previous debts. These rollovers did not produce better interest rates, nor were they to cover capital loans that had come to maturity and could not be honoured in full and final fashion. The increase in refinancing was largely in the interest of banks and investors in Puerto Rican public debt, for which US investors benefit from a triple tax exemption (local, state and federal), and ironically, higher and higher interest rates as the situation deteriorates. So, the banks pushed Puerto Rico to rollover its debt at a rapid rate, to make as many issues as possible, that the investors were quick to grab. Except that when an old debt is refinanced the unpaid interest becomes capitalised into the new loan. The interest is thus calculated on a higher sum. Another way of compounding interest.

Compounding interest is a double problem for a borrower: it considerably increases the servicing of the debt as at the same time it is supposed to transform the investors profit (the interest) into new debt added to the initial debt. This is particularly significant in the case of the CABs (see above). Other than the fact that an audit of Puerto Rican public debt would identify which part, if not all, of Puerto Rican debt is odious, illegal, illegitimate or unsustainable and the conclusions would uncover the banking and financial methods, that affect the day to day lives of the people. It is important that these practices, that have no other interest than the profits of a privilege minority be revealed, publicised, understood and finally rendered ineffective. Certain questions such as: who authorised Puerto Rico’s CAB operations; in whose interest; how is it that a small minority of people have managed to flout so many, may also be asked.

PROMESA: NEOCOLONIAL CONFLICTS OF INTEREST

The US federal government wants to meet the debt crisis in Puerto Rico without meeting the collateral humanitarian crisis: it set up a home-made IMF in the guise of a Fiscal Control Board, nicknamed The Junta by the inhabitants of Puerto Rico. The board was established by the PROMESA act, voted in July 2016; it consists of seven members, four of which are appointed by the Republican group in the House of Representatives and three by the Democrats. The governor of Puerto Rico is a member, but without any right to vote or participate in final decisions. The Board’s task is to restore the Puerto Rican government’s ‘fiscal responsibility’ and give the island access to financial markets to finance its investments. But it is not at all supposed to ‘bail out’ Puerto Rico as was done for private banks. The money that is wanting is to be found in Puerto Rico, through a delicate mix of cuts in public spending, layoffs and privatizations (for those who are not yet familiar with the recipe, it can also be found in all Structural Adjustment Programs, Poverty Reduction Strategy Program, HIPC Initiative, Greek memoranda and other similar fun games that have been implemented on a large scale for the past thirty years without ever resulting in anything but more profits for some vultures).

Apart from its program, which will not alleviate the island’s economic plight and will further deteriorate the already tragic predicament of its population, the board raises issues at several levels:

1. it is enforced by the US federal government which the Puerto Ricans cannot elect;
2. it can implement neoliberal reforms that have shown how efficient they are when it comes to producing extreme poverty, inequalities and economic dependence, and this without having to consult the Puerto Rican Parliament;
3. it consists of members whose concerns are light-years away from the Puerto Rican people’s daily lives, with its few Puerto Rican members bearing a heavy responsibility for the island’s current economic predicament;
4. conflicts of interest mar its record even before its very first meeting (see box).

In short, setting up a Fiscal Control Board comforts the US colonial hold on Puerto Rico and claims legitimacy by describing the former Puerto Rican governments as irresponsible and needing the supervision of the fiscal control board.

Unfortunately, it is almost a textbook case that is unfolding before us, with all the well known components of people’s enforced submission: colonialism and neocolonialism; the interests of a privileged minority are widely put forward; laws are flouted; the people’s human and democratic rights are dismissed. Puerto Rico’s debt must be cancelled, but it is unlikely to happen. An integral debt audit, with active citizens’ participation, would make it possible to expose Puerto Rico’s debt as illegitimate and to mobilize public opinion, provided social movements use the findings and keep demanding the cancellation of the debt and a genuine change of policies.

Translated by Christine Pagnoule and Mike Krolikowski