Status of American island colony of Puerto Rico up for grabs after painful ‘unsustainable’ debt restructuring
Puerto Rico’s controversial pact with the Financial Oversight and Management Board – the US attempt to reduce the island’s oppressive debt – has been held up as a model for US states and cities when bankruptcy threatens. But the deal has left the island with bleak economic prospects and “unsustainable” billions still to be paid, says Mairym Ramos-Salinas, a union official and ex-assistant to the island’s former governor.
And yet, moving away from Puerto Rico’s old political parties gave him and other patriots hope that a stronger economy could arise. That, plus debt settlement, may have paved the way for finally addressing the island’s status as a Caribbean colony of over three million people, twice the population of Philadelphia, but still without a vote in Congress.
The island has long worked under a colonial status that US presidents and many Puerto Ricans say promotes political and fiscal instability.
Congress’s PROMESA law that created the oversight board, or “La Junta” as critics call it, “was an exercise in colonial power,” said Ramos-Salinas, director of governance for the 20,000-strong city. Puerto Rico Service Employees. International Union.
She and her team have been monitoring the bankruptcy process since 2015. Associate legal counsel Alvin Velazquez sat on the secured creditors’ committee and pushed to defend retirees, while Armando Pintado researched mostly US bond investors. from Puerto Rico.
The board, led for most of its history by Penn law professor David Skeel, a bankruptcy expert, had its debt settlements approved last winter by U.S. District Judge Laura Taylor Swain . The board has pledged to significantly reduce the island’s tax burden — payments will total $1.15 billion a year, a flat rate, hedge against inflation — and help Puerto Rico move past a legacy of inefficient spending, low wages and investment, aging infrastructure and hurricane damage.
The plan cut payments to bondholders, froze pensions and ended future retirement income guarantees. He also demanded the sale or transfer of certain public assets to private hands. It’s the kind of painful medicine familiar to failing corporations and a few American cities such as Harrisburg and Detroit. It’s also a model for debt-ridden Illinois, New Jersey or Pennsylvania if they don’t match tax revenue with long-term spending, warned state Rep. Frank X. Ryan (R. , Lebanon).
This solution was crafted in Washington, negotiated with Wall Street, and reluctantly endorsed by Puerto Rico’s top leaders, faced with the alternative of much higher borrowing costs.
But “we at SEIU believe that the law incentivizes Puerto Ricans to fail,” Ramos-Salinas says. “The recipe is austerity without a real plan for economic growth. That is, ‘Let’s cut from here.’ ”
Hasn’t Puerto Rico, after years of decline, finally shown population growth in recent years, promising more to come?
Americans have moved to the island in search of cheap retirement and tax breaks, and rebuilding after the devastating storms of 2020 has created temporary jobs, but “our young people keep coming to the United States, in particular, to look for better opportunities,” Ramos-Salinas said. “The implementation of austerity has left us without a decent minimum wage.”
At $8.50 an hour, Puerto Rico’s newly increased minimum is several dollars lower than those in New York, Florida or California, although it is higher than Pennsylvania’s $7.25. The islands medium salary of $689 per week is just over half the American average. Unemployment is almost double the US average.
The situation for pensioners and low-wage workers is worse because of inflation – which is hitting hard in a place where so much food, fuel, clothing and other staples, once produced locally, are now arriving by diesel barge. Power from the island’s grid has been intermittent in many areas, leaving food to spoil and appliances fried. Ramos-Salinas says that makes her pessimistic about the board’s fiscal growth targets.
What about reduced creditor payments, which the council says will save about $50 billion over the years?
The SEIU team notes that the settlement calls for a sliding repayment scale, in which most creditors, other than the pension system, can expect to collect up to 85% to 100% of what is due to them. owed (which amounts to more than 100 billion dollars). The smallest recoveries go to investors who cynically bought bonds issued after 2011 when it was clear the island was in serious financial trouble, with industrial employment declining after the US ended tax breaks for a long time.
Skeel said the board had approved conservative discounts that left debt manageable. Ramos-Salinas said a people-backed board would have dug in for bigger discounts.
In fact, if the syndicate’s fears prove true and the island’s economy flattens, the settlement calls for paying only two-thirds to four-fifths of the debt, depending on the bonds held by an investor, while canceling the rest. This will result in bigger savings, but against a weaker economy that offers few incentives for investors or workers.
The board was relieved to be able to settle retired workers’ pensions without cutting after the SEIU and other unionized workers demonstrated to protest the proposed 30% cuts. Even that, for Ramos-Salinas, was hardly a victory. “Typical retirees make between $1,000 and $2,000 a month, and now with the settlement, they don’t get any increase in the cost of living, with all that inflation. So you put the cuts on the backs of retirees like my mother.
Union leaders representing pension funds were sometimes “the only Puerto Ricans at the table,” Ramos-Salinas added. Opposite them, fighting against the removal of more points on bond payments, were “the same vulture investment funds you saw in Greece, Argentina, [and] in Belize”, all debt-ridden countries.
What about the new wave of American real estate investors we heard about in the sunny dispatches from Old San Juan? “They have a law allowing the wealthy to buy iconic buildings and upgrade them. But the people who profit from it don’t create many jobs,” Ramos-Salinas said. “They take the opportunity to settle here and live well without paying the taxes they would pay in the United States, while our young people emigrate. This is not a future we want for Puerto Rico.
She is encouraged by recent convictions of former island officials, including Puerto Rico Public School principal Julia Keleher, who pleaded guilty to two federal fraud charges last year.
Ramos-Salinas says these cases have diminished the two long-dominant political parties. In the last election, Pedro Pierluisi, whose New Progressive Party (PNP) supports statehood for Puerto Rico, won the gubernatorial race with just 33% of the vote, but lost a majority in both houses. of the legislature.
Most striking was how the People’s Democratic Party (PPD), a longtime rival of the PNP, also lost ground. The vote split into three parts, with a collection of alternative candidates and movements taking almost a third of the total. Foreigners hold the balance of power in the Senate.
“Increasingly, people are voting for candidates, not ‘the party,'” believing that the old parties excluded people from real decisions, adds Patricia L. DeCarlo, a longtime community leader from the Norris Square neighborhood. in Philadelphia who recently returned to the island. .
Ramos-Salinas says these alternative political groups are building support for a single candidate in the race for the next governor, in hopes that this politician will prove a strong negotiator with the U.S. Congress — not just over Puerto Rico’s status, but on “an urgent agenda”. ” in the interest of the island.
“It’s about building this country,” she said.