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Barry Sheppard: Screwed by vulture funds, Puerto Rico is the Washington's 'Greece'
By Barry Sheppard
July 27, 2015 -- Green Left Weekly, posted at Links International Journal of Socialist Renewal -- The world has been focused on the spectacle of the “Troika” of the International Monetary Fund, European Union and the European Central Bank crushing the Greek people, but it is far from the only example of strong nations using a “debt crisis” to extract more wealth from those that are weaker.
A case in point is the US colony of Puerto Rico. In a June 28 New York Times interview, the governor of the Caribbean archipelago nation declared its debt of US$73 billion “is not payable. There is no other option. I would love to have an easier option. This is not politics. This is math.”
Puerto Rico, which remains a territory of the US, has missed a July 1 deadline on a payment of more than $1 billion.
Most of the debt is owed to US hedge funds, mutual funds or other investment accounts. Also known as “vulture funds”, these institutions buy up debt owed by the Puerto Rican government and public enterprises at very low prices because investors know they are almost worthless. They then demand repayment at full value.
On June 30, Puerto Rican officials began negotiations with creditors. Among those attending the meeting was former IMF official Anne Krueger. Her proposed solution to the debt crisis includes Puerto Rico cutting its minimum wage below the US federal level of $7.50 an hour and slashing subsidies for the University of Puerto Rico.
Protesters gathered outside the Manhattan offices of the financial giant Citigroup, where the meeting took place. On July 14, Democracy Now! spoke to protester David Galarza, who said: “I live here in New York. I’m puertorriqueño, and my parents and my family live in Puerto Rico …
“We are saying with one clear voice, ‘no’ to the austerity plans being proposed by Anne Krueger. And we are saying ‘no’ to the austerity plans being pushed by the hedge fund owners and the managers and the banksters that created similar situations in Greece, in Spain and even in this country.”
The White House has announced the federal government would not contribute any money to help Puerto Rico. Janet Yellen, head of the Federal Reserve Bank, chimed in that it would also do nothing. Yellen sees “no risk” that a default by Puerto Rico will spread to the US mainland, so it is of no concern.
This is the same Federal Reserve that pumped billions into the financial institutions such as Citicorp, and then lent them trillions more, in the wake of the 2008 financial collapse. So the US has its own “troika” — the federal government, the Federal Reserve Bank and the financial institutions — telling Puerto Rico to “drop dead”.
The squeeze on Puerto Rico by US finance capital comes in the context of a depression in the archipelago that dates back to 2005. The poverty level is nearly double that of the poorest US state.
The unemployment level is twice that across the US as a whole. Puerto Rico’s health system if on the verge of collapse. Sixty percent of the population relies on federal programs of Medicare, Medicare Advantage or Medicaid.
Under President Barack Obama's healthcare program, Puerto Rico gets only 60% of the funding of that US states get for Medicare, and 70% of state Medicaid funding. The shortfall amounts to $500 million, which the cash-strapped country cannot afford to cover.
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. Such discrepancies exist because the country is a colony of the US, euphemistically labelled a “territory”.
Puerto Rico was originally a Spanish colony. It was captured by the US in the Spanish-American War of 1898, along with Cuba and the Philippines.
This led to the Philippine-US War, where the US killed 100,000 Filipinos who were fighting for that country’s independence. Cuba, meanwhile, became a virtual US colony up until the 1959 Cuban Revolution, while Puerto Rico remained a colony.
In the 117 years since, US companies have taken huge profits from Puerto Rico. For the first 50 years, it was US sugar barons’ plantations that benefited from the very low wages.
Over the next 50 years, the US government gave US firms big tax write-offs to locate in Puerto Rico. At first, it was shoes and clothing manufacturers who profited.
Then more capital-intensive businesses such as pharmaceuticals also moved in. That made Puerto Rico one of the top prescription drug manufacturers in the world. At one point, 13 of the top 20 prescription drugs were made in the country.
In 1996, Congress began to phase out the tax breaks, and with them much of the country’s industry. The tax breaks were gone by 2005. Since then, Puerto Rico has been in recession — made worse by the 2008 financial collapse and Great Recession.
It was forced to rely on loans to keep afloat. This means for the past decade, it has been mainly the financial vultures who have sucked the country dry.
Puerto Ricans are US citizens and are allowed to come to the mainland. They cannot be kept out like Mexicans fleeing poverty, who are forced to enter the US without documents.
Puerto Ricans are moving to mainland US at the rate of 50,000 a year. Now there are 5 million puertorriqueños living on the mainland, while 3.5 million live in the colony.
We have reached the point where Puerto Rico simply has no more money to pay the loan sharks. To top it off, because it is a colony, it is not allowed to declare bankruptcy like a state or even a city could, like Detroit has done. Like Greece, it does not have its own currency.
It is not clear what the outcome of the debt crisis will be. Will it be like Greece, forced to take out even more loans with interest to pay previous loans and accumulated interest while forced to implement even more austerity?