Columns, Opinions

Fernandez ’21: Puerto Rico’s debt crisis

By
Staff Columnist
Monday, April 8, 2019

Puerto Rico has faded out of the public discourse as the captivating story of Hurricane Maria is replaced by the much less entertaining story of a long and slow effort of reconstruction. However, there is still a crisis taking place on the island that deserves to be talked about and, surprisingly enough, runs deeper than any natural disaster. The crisis threatens to cripple Puerto Rico for decades to come by further sinking its $74 billion debt.

As post-hurricane circumstances stabilize, the fiscal control board imposed by Congress to manage Puerto Rico’s debt, part of the Puerto Rico Oversight, Management and Economic Stability Act, has been busy making decisions about the future of Puerto Rico and its people. More than anything, these decisions will have serious consequences for youth in Puerto Rico, a population that has been systematically disenfranchised.

The reality for young people in Puerto Rico has proven increasingly difficult since PROMESA was established in 2016. Since then, 60 percent of Puerto Rico’s youth has grown up below the poverty line.

One of PROMESA’s first acts was a provision that lowered the minimum wage for workers under the age of 25 to $4.25 an hour. This, along with high unemployment, has devastated young, working people, who pay more for gas, utilities and groceries than the average American does.

PROMESA has also drastically cut education across all levels throughout the island. The board has closed hundreds of elementary and high schools and has consistently fought to drain funds from the University of Puerto Rico, one of the island’s most important institutions. Aida Diaz Rivera, the president of Puerto Rico’s Teachers Association, described these measures as a “massacre against Puerto Rico’s education.” Student enrollment on the island has dropped by tens of thousands of students, as families and young adults flee in masses. Middle- and higher-class students have begun searching for the first opportunity to join the exodus and attend school off the island, while those living in poverty are dropping out in increasing numbers to help support their family’s income. Prospects for young people on the island are bleak as the school system crumbles at the hands of PROMESA.

However, what seems to pose the biggest challenge to young people on the island goes beyond the lack of educational or career opportunities: It is the recent approval of a debt restructuring deal for Puerto Rico’s Sales Tax Financing Corp., known as COFINA. The deal restructures the largest portion of the debt, held by private, predominantly U.S. bondholders. Before COFINA, the island’s debt had been addressed with a sales tax that had increased immensely over the past decade — reaching the current high of 11.5 percent. Under those measures, Puerto Rican people had been paying Vulture funds — funds that invest in weak debt or debt considered to be in default — for a largely illegitimate debt acquired because of the loose financial laws that the United States has maintained in Puerto Rico since it acquired the colony. Now, the debt restructuring centers around bond holders, which brings no promise of alleviation to the Puerto Rican people.

Several senior bondholders, which are mainly hedge funds, are now expecting an even larger profit, as they bought loads of junior bonds in the midst of the chaos of Hurricane Maria, taking advantage of the drastically dropping bond prices. The debt restructure will grant those bondholders almost a full payment, while junior bondholders, many of whom are Puerto Rican, will receive only 54 percent of the payout value. Through the approval of the debt restructuring, the Puerto Rican government renounces its right to challenge the constitutionality of COFINA in the future, effectively locking the next several generations of Puerto Ricans into a system that will serve private debt holders at the direct expense of essential public programs.

Francisco Santiago Cintron, writer for the publication 80 Grados, astutely wrote that youth, particularly those under the legal voting age of 18, are “the great absent voice in Puerto Rico” right now. Young people must face the fact that a decision made when they had no voice and no vote will continue to affect them well into their fifties.

As the government and the economy falter and the quality of life for Puerto Ricans tanks, this deal ensures that U.S. corporate profits soar. Puerto Rico’s position as a mere source of profit for U.S. corporate interests no longer lies in the shadows of questionable deals made behind closed doors. The exploitation of Puerto Rico is out in the open, blatant and unabashed. We can no longer hide behind the excuse of ignorance. The time to act is now because soon, it will be too late.

This crisis might feel far removed from the average American. However, the truth is that hundreds of U.S. institutions and organizations are involved as debt holders and are thereby implicated in the massive, systematic robbing of the Puerto Rican people.

Such implications lie closer to us than we might think; for instance, Baupost, one of the major debt-holding hedge funds, includes Harvard, Yale and Princeton as major investors. Public institutions such as the University Association in Maine or the Teachers Retirement Fund in Texas are also involved. Chances are, everyone reading this has some kind of connection to a debt holder, meaning we all have a part to play in standing up for the future of Puerto Rico.

The decision to approve the COFINA deal and the consequences of doing so will affect several generations of Puerto Ricans, some of whom haven’t even been born yet. The lack of press that this issue has gotten among U.S. media is incredibly frustrating; while this is a problem that primarily affects those living in Puerto Rico, it is one in which all Americans are intimately involved. 

There are now more Puerto Ricans living in the United States than there are living in Puerto Rico. Democracy in Puerto Rico has been almost entirely undermined since PROMESA was given total control of the island. U.S. residents voting for Congress now have more of a say on what happens to Puerto Rico than anyone currently living on the island, since they are denied representation in Washington.

Furthermore, a substantial portion of the Puerto Rican debt is held by private and public firms and individuals located on the U.S. mainland. Americans all across the United States have been passively enjoying the benefits of Puerto Rico’s colonial status, which has played the single most important role in creating the circumstances that have made such a colossal crisis possible. The important truth is that if you are currently living in the United States, Puerto Rico’s humanitarian and fiscal crisis is your problem, too. Own up to it.

Marysol Fernandez ’21 can be reached at marysol_fernandez@brown.edu. Please send responses to this opinion to letters@browndailyherald.com and other op-eds to opinions@browndailyherald.com.