cover photo: oddmenout.com

It’s not the first time debt has become a big problem, and it’s not the last time it will be. But Puerto Rico’s debt should be a front-page story in the United States right now. The island’s people are suffering from the declining economic situation on the island while U.S. politicians quarrel about what assistance we can and cannot extent to the government of Puerto Rico. Maybe, like us, you were confused about why exactly Puerto Rico is in this position, and furthermore, what Puerto Rico exactly is to the United States right now.

In this feature, the Collie dives into the colonial history of Puerto Rico to uncover just what shaped its relationship with the U.S. From there, we turn our attention to the particularities of Puerto Rico’s debt to explain exactly how it’s traded and what that means for the island.

Finally, there is a pressing question, a dismissed accusation that often gets made, that we want to see discussed and answered: Does the United States have a colonial relationship with Puerto Rico?

The Spanish Empire desperately clung to its remaining American colonies.

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credit: bishop.jmstanton.com

(Note: Almost all citations in these first three sections are pulled from sources [18] and [20].)

Think about the Spanish Empire during the late 1800s. What does it look like? Once, it dominated much of the Western hemisphere, its sprawl making it among the most powerful countries in the world. The Spanish had possession of large swaths of Central and South America, and while that’s where the majority of their land was, the Spanish also exercised control over islands in the Caribbean, namely Puerto Rico and Cuba.

When Spain’s empire was at its full extent, Cuba and Puerto Rico served as valuable defensive territories. Each provided a crucial tactical position for the Spanish, especially given that other imperial domains such as those of England and France surrounded the Spanish Empire. If the Spanish could maintain these island strongholds, they could capably defend much of the Spanish Main from naval attacks.

But by the late 1800s, the Spanish Main for the most part wasn’t Spanish anymore. The 1800s saw the creation, for example, of Gran Colombia, headed by Simón Bolívar. With this and other areas now no longer under Spanish control, only Puerto Rico and Cuba remained within Spain’s American empire by the 1890s.

Despite the fact that the islands of Cuba and Puerto Rico lost much of their defensive significance after the dissolution of the Spanish Empire, Spain nonetheless continued to exercise control over them. Part of this was, perhaps, resource motivated: Both islands still maintained plantations that exported valuable goods. But the islands also remained as the last vestige of Spain’s powerful empire. So, despite offers from the United States to buy Cuba, the Spanish continued to hold on to its island colonies.

At this time, the Cuban insurrection rebelled against the Spanish occupation of the island. The Spanish fought to maintain control, but beset by disease and outmatched by the guerilla tactics of the insurrectionists, the Spanish slowly felt their grasp on Cuba loosening.

It is likely that the Spanish fear of revolution spread from Cuban affairs to those in Puerto Rico. Indeed, Simón Bolívar’s nationalist movements in South America, as well as the Cuban rebellion, inspired some unsuccessful uprisings in Puerto Rico. Undoubtedly nervous about losing its last imperial foothold in the Americas, Spain granted carta autonomica to Puerto Rico in 1897. While this act would maintain a Spanish-appointed governor in Puerto Rico, it would also grant the island much more control over its governance.

This pseudo-respite from imperial control was short-lived. Only one year after Spain granted autonomy to the island, the United States decided to annex it.

The United States in the 1890s was heavily influenced by nationalist and imperialist sentiments.

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credit: history105.libraries.wsu.edu

While the Spanish empire collapsed in the 1890s, it was succeeded by a new arrival on the imperial world stage: The United States. Within one decade, the U.S. transformed from a North American country of little concern to world powers into an expansionist imperial state.

These sweeping changes were perhaps the combination of a perfect storm, a concoction of historical events mixed with the ethos of the time period. 1890 was the end of an American era, giving rise to a crisis of national identity. In the census of 1890, it was officially declared that the frontier, finally, was closed. This brought the ideals of manifest destiny and westward expansion to their logical conclusion: With nowhere left to expand, it seemed as though the period of the wild and rugged American frontier was at an end.

But wasn’t this the goal the whole time, to create a country that spanned from the east coast to the west coast? What some would perhaps call an achievement was instead a moment of extreme anxiety for the American people. This is best illustrated by citing the 1893 book by historian Frederick Jackson Turner called The Significance of the Frontier. Here Turner posited his “Frontier Thesis,” the idea that American exceptionalism was defined by the expansion of the United States frontier, and by the difficulties of that life. No more would the wagon trains push west. No more would American settlers clash with Native Americans (it’s of some note that the Wounded Knee Massacre was also perpetrated in 1890). And so, with no frontier to expand, the populace grew concerned that American exceptionalism was at an end.

The national preoccupation with the end of expansion dovetailed fatefully with a more globally rooted phenomenon that also happened to be a hallmark of the late 1800s: The idea that civilization was making its inhabitants soft. War was the only way by which cultures (or in the parlance of the time, races) maintained their power. This philosophy began, with the closing of the frontier, to gain urgent support from American politicians. Some of these American imperialists are lesser-known names, like Henry Cabot Lodge and Albert Beveridge, but one in particular stands apart. Theodore Roosevelt was among the most prominent voices of American imperialism.

Although we refer to these men as imperialists, they have been classed under several terms. Roosevelt didn’t favor the word imperialist, and opted instead to label himself an expansionist or an Americanist. But other people of the time, notably President William McKinley, referred to these people as jingoists. The jingoist, as Dan Carlin defines it, was “someone who’s tough on defense, who’s an uber-patriot, who thinks that their country should expand, someone who’s Chauvinistic and bellicose in a nationalistic sense.” Essentially, the jingoists were some combination of imperialists and nationalists.

But, the jingoists struggled to influence policy under McKinley, who was very firmly not interested in war and expansion. Those like Theodore Roosevelt, who believed that “war was what great powers did,” had to wait for the prime opportunity to push an expansionist policy.

U.S. imperialism was riddled with contradictions that its supporters successfully reconciled.

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credit: wikimedia.org

You can probably already understand why the United States becoming an imperial power left a lot of Americans feeling like their government betrayed the ideals of the nation. In fact, it seemed as if the United States was now perpetuating the national narrative anew. Think about it: The U.S.’s national myth is founded upon freedom from oppressors. They threw off English imperial control and established a new country founded on enlightenment ideals of liberty and self-governance. How, then, could the jingoists possibly justify occupying other territories, especially if those territories did not want to be occupied?

1897 was the last year the U.S. resisted the allure of imperialism. After the battleship USS Maine exploded in Havana harbor in 1898 (accidentally, by some accounts. The ships were known to have mechanical failings), President McKinley could no longer refuse his country’s call for war with the Spanish. The phenomenon known as Yellow Journalism placed tremendous pressure on McKinley to intervene in Cuba, where the media painted a Spanish army inflicting ungodly atrocities on the local population. It finally seemed time to intervene on behalf of their Southern neighbors.

The U.S. declared war against the Spanish in 1898. By the end of that same year, Puerto Rico and Guam were under United States control, and Cuba achieved its independence. At around the same time, a group of American missionaries and businessmen toppled the Hawaiian monarchy. They had long beseeched McKinley to annex the Hawaiian Islands, and now, with other colonies in the Caribbean and the Pacific, it was pointless to refuse. The United States had its empire. But, to many people of the time, the aggressive expansion of U.S. interests made the country no better than the British Empire.

The only way that this new imperial mission could be justified was by redefining imperialism, which prominent imperialists of the time attempted to do by delineating a new, special American imperialism. Part of it was very much founded upon racial theory of the time. Albert J. Beveridge argued that since members of the English-speaking race were “the master organizers of the world,” it was therefore logical that they “administer government among savage and senile peoples.” But to my eye, at least, this statement doesn’t look remarkably different from that given by European imperialists.

The religious leader Wallace Radcliffe’s redefinition of American imperialism is maybe more appropriate, divorced from explicit mentions of racial supremacy. Although such a racial sentiment underlies this philosophy, Radcliffe said:

“Imperialism is in the air, but it has new definitions and better inventions. It is republicanism writ large, it is imperialism, not for domination but for civilization, not for absolutism but for self-government. American imperialism is enthusiastic, optimistic, and beneficial republicanism. Imperialism expresses itself by expansion. I believe in Imperialism because I believe in foreign missions… The church must go where America goes.”

This in a nutshell was how America reconciled its imperial mission with its national myth. When you consider its first acquisitions, it makes some sense: The U.S. took Guam, the Philippines, Puerto Rico—all places formerly under Spanish imperial administration. It wasn’t that the U.S. was subjecting these places to imperialism, but freeing them from their European imperial masters. The United States wasn’t conquering new lands to oppress them; they were just trying to bring enlightenment ideals of freedom and autonomy to new places that did not have any notion of them.

Even Nelson A. Miles, the general who landed forces at Guanica on Puerto Rico in 1898, stated, “This is not a war of devastation, but one to give all within the control of its military and naval forces the advantages and blessings of enlightened civilization.”

Perhaps it was true naiveté on the part of a blossoming empire that the U.S. thought it would be different than the other imperial powers. This very idealism is why the U.S. war in the Philippines, as Dan Carlin notes, was a harsh wakeup call for the nation. After the relatively easy war for Cuba and Puerto Rico, the Philippine war reminded Americans that imperialism was bloody and brutal. The war against Filipino insurgents saw U.S. troops committing many of the same atrocities that the Spanish were condemned for during their occupation of Cuba.

Moving forward into Puerto Rico’s current crisis, the history of American imperialism serves to illustrate a singularly important lesson: Put all the intentions aside, the benevolence and the spread of freedom. In the end, American imperialism was no better and no different than any other kind of imperialism.

Puerto Rico’s status as a territory massively affects the island’s governance.

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credit: nsvrc.org

Let us rejoin the United States during yet another crisis of identity. It’s the early 1900s now, and the jingoists got their way: Guam, Hawaii, and Puerto Rico belonged to them and the construction of a canal to ease passage between the oceans was underway in Panama. But now, there was a new problem to address: The “racist aspect” (Dan Carlin)—now that all of these people, the Puerto Ricans, the Hawaiians, and the Guamanians, were under American rule, were they not effectively Americans themselves? That couldn’t be, given that Americans were the “Teutonic peoples,” (Beveridge) English-speaking, exceptional. The exceptional American umbrella couldn’t expand. So, a series of court cases known as the insular rulings, it was decided that colonies could be incorporated into the U.S. government, while the inhabitants of said colonies would not “get all the benefits of the constitution.”

This created a hierarchy of insular U.S. holdings, which the Office of Insular Affairs defines as such:

  1. A Commonwealth, or “an organized United States insular area, which has established with the Federal Government, a more highly developed relationship.”
  2. An Unincorporated Territory, or “A United States insular area in which the United States Congress has determined that only selected parts of the United States Constitution apply.
  3. An Organized Territory, or “A United States insular area for which the United States Congress has enacted an organic act.”
  4. An Occupied Territory.

Some of these definitions seem overly vague, and allow for U.S. territories to be treated in wildly different ways, and often to be excluded from rather important aspects of the U.S. constitution. Alvita Akiboh notes that Puerto Rico has at various points in its history “encompassed all of the aforementioned definitions.”

Currently, Puerto Rico’s status as a commonwealth territory means that while many aspects of the Island’s governance are similar to that of a U.S. state, there are also many differences. For example, Puerto Ricans are considered U.S. citizens and must abide by federal law, despite the fact that they are not allowed a single voting member in the U.S. Congress.[10] They are provided with an elected official who’s role is to advise Congressmen on Puerto Rican issues. This elected official is technically in the Congress, but they are not permitted to vote.

Lin-Manuel Miranda notes that “Puerto Ricans can vote neither for the president nor for congressional representatives.”[14] Some articles in circulation are misleading, arguing that Puerto Ricans have the right to vote for president. As we recently saw, Puerto Rico does have a primary, so its citizens could be said to have some voice in choosing a president, but this should never be confused with the fact that Puerto Ricans are not able to vote in the national presidential election.

In many cases, the territory status of Puerto Rico directly affects its citizens. Puerto Ricans pay the same payroll taxes as mainland workers, and yet, “the island receives sharply lower reimbursement rates for Medicare and Medicaid. Its poorest citizens are ineligible for the Earned Income Tax Credit.”[10] Without sufficient reimbursement rates for doctors and hospitals on the island, many doctors relocate to the mainland.[13]

But perhaps the largest difference between Puerto Rico and other parts of the United States, for purposes of understanding the current crisis, is that the island’s ability to deal with its debt is tremendously affected by its status as a territory. Some important facts going forward:

  1. Under the Puerto Rican constitution, “General obligation debt gets a senior position above virtually all other items in the budget.”[10] This means that before Puerto Rico’s government can spend money on anything at all, they are legally required to pay back their creditors.
  2. Puerto Rico “and its public entities are legally prohibited from defaulting on their debt.”[1]
  3. For inexplicable reasons, “In 1984 Congress specifically carved Puerto Rico out from chapter 9 municipal bankruptcy protections.”[3] This requires more explanation: As Investopedia says, “The purpose of Chapter 9 is to negotiate a repayment plan between the municipality and creditors, which can include reducing the outstanding debt or interest rate, extending the term of the loan, and refinancing debts.” Essentially, Chapter 9 bankruptcy protects municipalities and provides them with strategies by which they can alleviate their debt. Almost all municipalities are provided with this protection, but Puerto Rico is not.

These differences in Puerto Rico’s law amount to the island having almost no recourse whatsoever to escape its debt. And it’s hard not to wonder if this isn’t why the island’s creditors were drawn there in the first place.

Puerto Rico sought loans in the form of issuing municipal bonds.

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credit: wsj.net

Generally speaking, loaning out to municipalities isn’t necessarily bad. What happens is that a municipality in a tough economic situation seeks investors so that it can pay for the things that it requires. “Municipalities are states, cities, counties, and other governmental entities” and they sell municipal bonds in order to “build schools, highways, hospitals, sewer systems, and many other projects.”[16] So buying municipal bonds can be a way to assist governments.

In Puerto Rico, these bonds would help the government improve the island’s infrastructure markedly. But, to investors, Puerto Rican municipal bonds were also very desirable. Puerto Rico’s bonds have the special quality of being “triple-tax-exempt,” meaning that their purchasers don’t need to pay municipal, state, or federal tax on the bond. This means that investors could buy these bonds at “a sharp discount.”[1]

Again, there’s nothing technically wrong with this: the municipality bonds were offered triple-tax-exempt specifically to encourage people to invest in Puerto Rico, offering the island additional fiscal resources. But, as I listed above, the “quirks” of Puerto Rico’s laws create an even more desirable situation for investors: For instance, that the senior position of general obligation debt in Puerto Rico’s payment process ensures timely payment. But here the good aspects of purchasing municipal bonds mingle with some potentially bad intentions: Puerto Rico cannot legally default on their debt, “essentially guaranteeing creditors their money regardless of island’s economy.”

This, perhaps, was where things started to go badly for Puerto Rico: Municipal bonds issued by the island’s government and its associated public corporations were considered extremely safe.

This was the first debt market, which consisted of “traditional municipal bond investors; mutual fund managers like Oppenheimer and Franklin Templeton,”[10] and as much as “Two-thirds of U.S. pension and retirement funds.”[15] It is important to note that this is the case, since these sorts of organizations are considered extremely safe investments. It was therefore extremely shocking when such a safe investment as Puerto Rico announced that they were $72 billion in debt, and worse, that it was not payable.

The debt crisis has created major problems for U.S. based creditors.

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credit: thenation.com

There are truthfully two debt markets in Puerto Rico. The first consists of these municipal bond purchasers such as hedge funds and retirement funds. But since the commencement of the debt crisis, a secondary debt market has emerged.

Puerto Rico is notably not the first place to be affected recently by nasty debt problems. Argentina, Greece, and Detroit also struggled recently with their own inability to pay off the debt they issued. Currently, there is a list of 36 hedge funds that have municipal bond holdings in Puerto Rico. 22 of them “had additional holdings in other distressed countries and cities” and three of them, Aurelius Capital Management, Monarch Alternative Capital, and Canyon Capital, “bought debt” in Detroit, Greece, Argentina, and Puerto Rico. This very clearly indicates that for certain firms, “lending to Puerto Rico is no accident; it’s an investment strategy.”[10]

These organizations purchase Puerto Rico’s bonds from its original creditors for cents on the dollar and are now avidly pursuing lawsuits against the government of Puerto Rico, intent on receiving payment for their investments. But these creditors have found it hard going, as Governor Alejandro García Padilla staunchly continues to argue that Puerto Rico simply and absolutely cannot pay its creditors.

Unsurprisingly, the hedge funds disagree with his assessments, and for support they have turned to the United States Congress. Now, as stated above, Puerto Rico is not included in Chapter 9 bankruptcy legislation, but measures have been taken to grant Puerto Rico similar powers. Unfortunately, the legislation being attempted is not desirable to any party, be it the creditors, the politicians, or the Puerto Rican people.

The legislative battle over whether Puerto Rico should be able to file for bankruptcy is divided into several parts. First, there are the creditors who “believe that Chapter 9 is stacked against them,”[13] offering Puerto Rico the ability to escape some of their debt and shortchanging investors who believed they had a guaranteed payment. This prompted hedge funds in July of 2015 to hire “former IMF official Claudio Loser to write a paper suggesting that Puerto Rico can fix the debt crisis without defaulting. The recommendations in the paper included firing teachers, increasing regressive sales taxes, rolling back labor laws like overtime and vacation benefits, slashing the minimum wage, and privatizing public assets,”[10] basically anything to prevent investors from losing out.

Furthermore, creditors “are spending millions to lobby… and have hired former lawmakers to push their case,”[7] some of whom were only too happy to help seeing as they own Puerto Rican municipal bonds themselves.[10] Other politicians have taken this opportunity to argue publicly against what they have painted to be another taxpayer bailout. The House Committee on Natural Resources issued a document stating that its members believe that allowing Puerto Rico access to Chapter 9 would “result in a bailout of Puerto Rico on the backs of tens of thousands of U.S. taxpayers.”[6] They also believe that “retroactively” adding certain municipalities to Chapter 9 could set a bad precedent, opening the floodgates for other cash-strapped municipalities to seek federal assistance.

But without the ability to turn to the federal government for help, Puerto Rico literally has no other options. Since it is not a sovereign country, it cannot seek assistance from “lenders of last resort such as the International Monetary Fund”[2] and, given congressional resistance to what they consider a bailout, it seems that “any real injection of funds into Puerto Rico has been deemed a non-starter.”[2] This means that the money to end the debt crisis cannot come from any third party—it must come at the cost of Puerto Rico’s quality of living.

Legislation to assist Puerto Rico is rife with colonial overtones.

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credit: latino.foxnews.com

The current legislation proposed to mitigate Puerto Rico’s crisis is disputed, exactly because of the government’s unwillingness to offer the island access to Chapter 9, instead proposing “a byzantine process to install an appointed financial-oversight board for Puerto Rico that could vote to allow it to restructure its debts and would control its finances.”[3] The decision to create this board arose from the direct support of the hedge funds such as Quinn Emanuel Urquhart & Sullivan, whose representative Susheel Kirpalani argued:

“We feel that the chances of our property rights being properly respected are greater in the hands of disinterested, dispassionate control board members than they would be in the hands of the administration in Puerto Rico, which seems to treat all property as house money.”[8]

The chairman of the House Natural Resources Committee Rob Bishop of Utah stated that he would allow “Puerto Rico’s nonvoting member of Congress, Pedro R. Pierluisi, to take the top Democratic seat” on the board. In this scenario, Pierluisi would be the only Puerto Rican on the committee overseeing Puerto Rico’s finances.

Naturally, Puerto Ricans were angered by the government’s insistence on establishing a financial control board. Governor García Padilla said that the federal oversight was “shameful and degrading,”[2] essentially depriving Puerto Ricans of their right to representation. Vann R. Newkirk II argued that the control board would be “soft colonialism by a new name,”[3] and Justice Juan Torruela, “the only Puerto Rican on the federal appeals court that’s responsible for cases from the island,” said that the creation of such oversight committees is tantamount to the “business as usual colonial treatment” of Puerto Rico.[9]

While politicians, economists, journalists, and creditors can quibble about whether financial oversight is really just colonialism’s newest avatar, it is indisputable that the creation of an oversight board has placed the locus of responsibility for the problem not on the federal government and not on the creditors, but on Puerto Rico. Many have attempted to argue that Puerto Rico’s government created its own fiscal problems. This isn’t necessarily untrue, as the island’s “public service monopolies are extraordinarily inefficient,” and the “territorial government has not been good with spending.” Many of the companies responsible for Puerto Rico’s infrastructure, known as public corporations,[4] have indeed struggled to manage their funding. Some people have also pointed to particular projects in Puerto Rico that seem unnecessary: a minor league baseball stadium, a water park, and an ice skating rink, to name a few.[15]

While such outstanding construction projects portray Puerto Rico’s spending as irresponsible, Austin Andrew for the Congressional Research Services has pointed out that blaming Puerto Rico for its debt is in one key way unfair. He says,

“The federal government has generally been reluctant to offer direct financial assistance to individual states in fiscal distress, although Congress at times has adjusted technical parameters of federal programs to provide their direct or indirect support for states. The independence of state governments to set their own fiscal paths has been linked to an expectation that those governments take responsibility for the consequences of their fiscal decisions.”[4]

Puerto Rico is, it would seem, held to the same fiscal standard as a U.S. state, and yet it is excluded from many of the principal fiscal protections afforded to a U.S. state. And, in addition to all of this, the United States government continues to enforce laws that hurt Puerto Rico’s economy.

Puerto Rico’s crisis is not just due to the debt market, but also to a poor economy.

Puerto Rico

The debt crisis is one wing, perhaps wrongfully the more well-covered wing, of Puerto Rico’s current problem. The economic is the other. The U.S. recession didn’t miss the island, but was if anything even worse in Puerto Rico than it was in the United States.

Prior to that, though, the island’s economy was on the rise—a situation that likely led to the perception of Puerto Rico’s municipal bonds as safe. This was due to a piece of legislation called Section 936, “a tax exemption for U.S. manufacturing on the island.” This particular exemption allowed the island to be a thriving location for business, in particular, pharmaceutical companies.[19] But in 1996, President Clinton, looking to back “deficit reduction measures,” began the ten year phase-out of the plan, which he believed would save the U.S. treasury billions of dollars.[10] His administration offered no plan to offset the impact of repealing 936, and inevitably when the phase-out was completed Puerto Rico fell into recession as manufacturers departed the island.

Without manufacturing, there wasn’t much to bolster the island’s economy, which has relatively few exploitable resources. Adding to the island’s economic problems is something known as the Jones-Shafroth Act, commonly known as the Jones Act. The Jones Act was the successor to the Foraker Act, signed in 1900 by William McKinley. The Foraker Act allowed for civil government on Puerto Rico and made the islanders citizens of the U.S. But it was the 1917 Jones act, signed by Woodrow Wilson, which made Puerto Rico an organized but unincorporated territory and also made the island’s bonds triple tax exempt (Interestingly, a side-effect of this act was that it extended the Selective Service Act of 1917 to Puerto Rico, resulting in the conscription of 20,000 Puerto Ricans to fight in World War I). [20]

This Jones Act is not to be confused with another act known as Jones Act as well. This second Jones Act is technically called the Merchant Marine Act of 1920 that “restricts cargo carriage between two U.S. ports with a foreign flagged ship. This means that foreign ships carrying U.S.-bound goods must stop at a U.S. port, transfer goods headed to Puerto Rico to a separate U.S. ship, and send them along.”[10] Of course, this drives shipping costs way up and creates an “exorbitant” cost of living on the island.

Citizens living on Puerto Rico today have a much lower standard of living than those in the mainland U.S. states. The poverty rate on the island is at around 45%,[10][15] compared to 15% on the mainland, while the unemployment rate now hovers around 12%, the highest in the U.S.[7] Businesses have been forced to close or lay off workers. Taxes on the island are much higher than on the mainland, and the sales tax has increased by more than 50%.[10] Foreclosures are common. In the government, austerity measures have been harsh, precipitating school closures, cancellation of salary and benefit increases, and funding cuts for hospitals.[4]

The current crisis has also had a direct effect on public health. With low Medicaid and Medicare spending, the island has the “highest national prevalence of diabetes, hypertension, and fair or poor self-rated health status among adults. Children on the Island are also affected with the highest pediatric asthma rates in the nation, and what until recently was the highest premature birth rate in the world.”[11] Furthermore, many have noted that the Zika virus threatens to strike Puerto Rico,[12][3] and Governor García Padilla has warned that his government will not be able to deal with the Zika virus, because it will not have sufficient funds to clear “standing pools of water or other places where mosquitoes thrive.”[12]

In the meantime, hundreds of thousands of people have migrated to the mainland from Puerto Rico, seeking better living conditions. Among them are doctors, who do not receive high reimbursements from the federal government on the island.[13] The low labor participation and significant migration away from the island also means that Puerto Rico’s economy is deteriorating as the debt crisis drags on, ensuring that the island will continue to be unable to pay its creditors.

The Significance of Status

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credit: politic365.com

When William McKinley annexed Puerto Rico in 1898, he declared that the island would be put through a process of “benevolent assimilation.”[17] This was certainly a colonialist declaration, to state that a Spanish-speaking island, geographically and culturally different from the U.S., would be assimilated into the American empire. But even if it was colonialist, it was a better policy than that currently in effect in Puerto Rico.

There is overwhelming evidence that the government doesn’t want to treat Puerto Rico as a part of the United States. The island’s status as a territory has made it easy for a long time to consider and treat Puerto Rico as a colony, not a true part of the U.S. Many people advocate that Puerto Rico bear the brunt of its own problems. Hedge fund owners and lobbyists look to get their payment, even at the cost of treating Puerto Ricans as if they weren’t U.S. citizens.

The prime example of this has been the various propositions to lower the minimum wage on the island in an effort to make Puerto Rico competitive with its Caribbean neighbors—basically, instead of letting it default, the hedge funds have advocated that Puerto Rico not be treated as if we own it. Rather, the hedge funds would argue, the government should lower the island down to the standards that they believe a Caribbean island should be held to. They would have us believe that it’s inherently ridiculous to treat Puerto Rico like a part of the United States and not as a foreign entity. But they would also have us believe that the hedge funds are the true victims here.

The first thing that I would advocate is that we should not let hedge funds managers act victimized. Now, here I will clarify: There are people who have their pensions, retirement funds, and other money invested in these hedge funds, and these people will lose a lot of money if their hedge fund doesn’t make back the investment. These people are the victims, but the Puerto Rican people are as well. When collecting a debt payment means pushing an entire island toward a humanitarian disaster, what possible justification can you have for collecting the payment?

If anyone is to blame for investors losing their money, it’s the hedge fund managers. When a regular municipality defaults on its debt, that’s just how it goes. But in Puerto Rico’s case, it’s hard not to believe that these hedge fund managers thought they had found free money, only to learn that they invested poorly. If these so-called “savers” really need to blame their losses on someone, they can point a finger directly at the manager of their particular fund.

For the Puerto Rican people, blame for the poor economy must rest in part on the U.S. government, and the various acts that work against the island’s prosperity. Fortunately, many lawmakers like Bernie Sanders, Elizabeth Warren, and Paul Ryan have come out on the island’s side, asking the government to find any means to keep Puerto Rico from falling into full-blown catastrophe.

Finally, to comment on the problem of statehood: While the status of Puerto Rico as a U.S. territory has in part contributed to the crisis, statehood remains a contentious issue on the island. However, voting trends do indicate that Puerto Rico’s citizens gravitate more and more toward statehood. In 1967, 60% of Puerto Ricans wanted to maintain their status as a commonwealth while only 39% advocated for statehood. In 1998, the amount of support for statehood rose to 46.4% while the support for the commonwealth plummeted to .06%. In the most recent plebiscite, held in 2012, 54% of the population was against a territorial commonwealth, with 61% in support of statehood.[20] While there have been notable and troubling problems with the ballots in these elections that do cast some doubt onto whether the percentages are accurate, it is hard not to notice the general trend away from the commonwealth and toward status as a U.S. state.

But, in the end, when we recall how vague the terms used to define insular U.S. territories are, it’s not really about Puerto Rico’s technical status: it’s about how the government treats them. The U.S. annexed Puerto Rico, decided to start an empire, and decided to be different from all of history’s empires. But if Puerto Rico continues to suffer, then the United States will only continue the tradition of imperial powers keeping their colonies down.

Works Cited

[1] Meacham, Carl. “Puerto Rico Debt: Is Becoming the 51st State the Answer?” Newsweek Magazine, 8/5/15. http://www.newsweek.com/puerto-rico-debt-becoming-51st-state-answer-360019

[2] Walsh, Mary Williams. “Bill to Ease Puerto Rico Debt Crisis Introduced in House.” The New York Times, April 12, 2016. http://www.nytimes.com/2016/04/13/business/dealbook/bill-to-ease-puerto-rico-debt-crisis-introduced-in-house.html

[3] Newkirk II, Vann R. “A Commonwealth in Crisis.” The Atlantic, April 27, 2016. http://www.theatlantic.com/politics/archive/2016/04/puerto-rico-debt-crisis-congress/480027/

[4] Austin, D. Andrew. “Puerto Rico’s Current Fiscal Challenges.” Congressional Research Service, April 11, 2016. https://www.fas.org/sgp/crs/row/R44095.pdf

[5] Newkirk II, Vann R. “Testing Territorial Limits.” The Atlantic, Mar 30, 2016. http://www.theatlantic.com/politics/archive/2016/03/territorial-limits/475935/

[6] House Committee on Natural Resources, “Oversight on Puerto Rico.” http://naturalresources.house.gov/uploadedfiles/puerto_rico_packet.pdf

[7] Jalonick, Mary Clare. “AP Explains: GOP battles bailout perception on Puerto Rico.” WTOP, April 26, 2016. http://wtop.com/government/2016/04/ap-explains-gop-battles-bailout-perception-on-puerto-rico-2/

[8] Michael Kaske and Billy House, “Puerto Rico’s Bondholders Divided in Fight Over Federal Rescue.” Bloomberg, April 19, 2016. http://www.bloomberg.com/news/articles/2016-04-19/puerto-rico-s-bondholders-divided-in-fight-over-federal-rescue

[9] Feldman, Noah. “Puerto Rico’s ‘Colonial’ Power Struggle.” Bloomberg, July 8, 2015. http://www.bloomberg.com/view/articles/2015-07-08/puerto-rico-s-colonial-power-struggle

[10] Dayen, David. “How Hedge Funds Deepen Puerto Rico’s Debt Crisis.” The American Prospect, December 11, 2015. http://prospect.org/article/how-hedge-funds-are-pillaging-puerto-rico

[11] Levis, Maria. “The Price of Inequality For Puerto Rico.” Health Affairs Blog, December 29, 2015. http://healthaffairs.org/blog/2015/12/29/the-price-of-inequality-for-puerto-rico/

[12] Francis, David. “Puerto Rico Doesn’t Want Congress’s Bailout Plan.” Foreign Policy, 25 March 2016. http://foreignpolicy.com/2016/03/25/puerto-rico-doesnt-want-congresss-bailout-plan/

[13] Walsh, Mary Williams. “Puerto Rico’s Debt Crisis Explained.” The New York Times, May 20, 2016. http://www.nytimes.com/interactive/2016/business/dealbook/puerto-rico-debt-crisis-explained.html

[14] Manuel-Miranda, Lin. “Give Puerto Rico Its Chance to Thrive.” The New York Times, 28 March 2016. http://www.nytimes.com/2016/03/28/opinion/lin-manuel-miranda-give-puerto-rico-its-chance-to-thrive.html

[15] Staff, “The Puerto Rico crisis, explained.” The Week, March 27, 2016. http://theweek.com/articles/614667/puerto-rico-crisis-explained

[16] Investinginbonds.com. “About Municipal Bonds.” http://www.investinginbonds.com/learnmore.asp?catid=8

[17] Patterson, David Royston. “Will Puerto Rico Be America’s 51st State?” The New York Times, November 24, 2012. http://www.nytimes.com/2012/11/25/opinion/sunday/will-puerto-rico-be-americas-51st-state.html

[18] Carlin, Dan. “The American Peril.” Hardcore History, July 25, 2013. Podcast.

[19] Oliver, John. Last Week Tonight segment on Puerto Rico. Watch it here.

[20] Akiboh, Alvita. “Puerto Rico’s Relationship with the United States?” US History Scene, http://ushistoryscene.com/article/puerto-rico/

[21] Investopedia.com. “Chapter 9 Definition.” http://www.investopedia.com/terms/c/chapter9.asp 

 

 

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