On June 29, the governor of Puerto Rico, Alejandro García Padilla, said that Puerto Rico’s debt was “not payable.” The government of Puerto Rico has a debt that is 70% of the islands Gross Domestic Product (GDP). This is more than three and half times as great as the next most indebted states, Rhode Island and Massachusetts, whose debt-to-GDP ratios are less than 20%. In addition, Puerto Rico’s electric utility also has major debt problems.
Puerto Rico’s debt woes are rooted in the fact that it is a colony of the U.S. Its economy is limited by the high cost of imports as a U.S. law, known as the Jones Act, requires all of Puerto Rico’s imports to be carried on U.S.-made ships that are U.S.-owned and staffed by Americans. This contributes to the cost of living being almost 15% higher than in the U.S, even though incomes average less than half that of those in the U.S. Unemployment in Puerto Rico is 12%, more than twice the U.S rate. Another problem is that the U.S. government made it easier for Puerto Rico to borrow by making its bonds exempt from all U.S. taxes. Last but not least, Puerto Rico cannot take advantage of U.S. bankruptcy law like other U.S. cities, counties and states.
Wall Street immediately turned to its friends in Congress such as Republican Jeffrey D. Duncan of South Carolina. Duncan has proposed setting up a ‘Financial Control Board’ to take over the finances of the government of Puerto Rico, to insure the best results for the Wall Street hedge funds that own billions of dollars of Puerto Rican bonds.
The International Monetary Fund (IMF) is also proposing more of its austerity medicine that it imposed on Greece. They say that Puerto Rico should eliminate its minimum wage, or if not, cut it to one-third the federal minimum of $7.25 an hour, or $2.41 an hour. In addition, the IMF wants a welfare cut to force people to work for these slave wages.
The governor of Puerto Rico and his allies among the Democrats in Congress want to restructure the debt and extend bankruptcy laws to Puerto Rico. This would be better than Wall Street running the show through a Financial Control Board, but would still mean more austerity - more pension cuts, more wage and job cuts for public sector workers and higher taxes - for the people of Puerto Rico.
What would benefit the people the most would be a path of struggle against the Wall Street banksters who almost brought down the world economy during the financial crisis of 2008. The debt should be eliminated. The Jones Act must be repealed. Ultimately, what Puerto Rico needs is independence - so that the their country is in their hands, not the hands of Wall Street hedge funds and their politicians in Washington, D.C.