Puerto Rico’s government has grown weary of the impeding fate of their tropic homeland. In efforts to preempt financial deficit on the island, elected officials from the commonwealth of Puerto Rico have made countless pleas to the U.S. government for financial assistance to pay off their $72 billion dollar debt.
“The crisis has a second, equally significant source––it is the relationship between the federal government and Puerto Rico, which is like the relationship between a master and his servant,” said Resident Commissioner Pedro Pierluisi during his speech on the House floor last week (Dec. 9).
Pierluisi’s frowning tone indicated his inner frustrations as he challenged Congress to extend a helping hand to help eliminate his country’s financial crisis. For decades, Puerto Rico has been making strides to become a successful entity under the United States. However, Congress and the Obama administration have yet to adhere to the plights of the Puerto Rican government, which has had no choice but to end necessary government services and slash education budgets.
With nearly five million Puerto Rican natives and their descendants living in the U.S., it’s discouraging that Congress has allowed the relationship between the U.S. and its commonwealth to become rattled by a financial crisis Puerto Rico’s government foresaw over a decade ago. Pierluisi’s despairing speech was essentially a cry for help to “have equality in this union or independence outside of it.”
Here’s a breakdown on what you need to know about Puerto Rico’s financial woes and why representatives like Pierluisi believe independence from the United States may be the island’s last resort.
To truly understand how Puerto Rico racked up debt into the billions, one must backtrack 40 years before the island’s woes began. In 1975, Republican Senator John Towers responded to the fears municipal fiscal meltdowns by passing a bill that blocked the U.S Securities and Exchange Commission from regulating the bond market worth $3.7 trillion. Puerto Rico had borrowed at least $72 billion dollars over the past four decades in the form of municipal bonds. The lack of transparency in Puerto Rico’s financial statistics, along with poor leadership, hindered the government’s ability to provide accurate numbers necessary to explain the island’s financial needs.
Over time, hedge funds and other investment firms began acquiring bonds from afflicted Puerto Rican jurisdictions that were desperately seeking liquidation they would’ve. According to the New York Times, Representative Nydia M. Velázquez, Democrat of New York, explained that hedge funds make up a major portion of Puerto Rico’s lingering debt and are “exacerbating the crisis and profiting from the island’s misery.” She also explained how investors who choose not to renegotiate their bond payments to the island are forcing the commonwealth to lay off teachers and nurses as well as reducing other necessary government services.
Velázquez’s bill strengthens federal regulations hedge funds and other investors are required to abide by to be in good standing with the S.E.C. The bill advises that the aforementioned must file statements with the S.E.C. only after they have acquired more than one percent of a class of a company’s stock over the previous five percent. In addition, each investor would be responsible for quarterly reporting for their customers who purchase the bonds, including municipal bonds and stock, in an effort to unveil all underground activities.
Albeit the bill would benefit Puerto Rico, there are other issues at hand that are impeding the island’s progression. After missing their debt payment for the first time back in August, the early signs of crisis foreshadowed the island’s growing financial woes. The island’s “commonwealth” status has become the metaphorical road block the government is struggling to get around.
The Puerto Rican government has worked to be recognized as the 51st state of the United States of America for decades. During his speech, Pierluisi likened the relationship between the U.S. and Puerto Rico to “a master and its servant” in an effort to emphasize how imperative change is between both governments. Pierluisi, a former avid supporter of statehood, expressed his thoughts on the idea of Puerto Rico possibly seeking independence from the U.S.
“We live at your whim,” Pierluisi said, “subject to your impulses, which are bound by virtually no legal rules or moral standards. If there is a silver lining in this crisis, it is that the crisis has caused a clear majority of my constituents to conclude that the relationship between the federal government and Puerto Rico must change. Puerto Rico must have equality in this union or independence outside of it.”
Pierluisi’s mental shift from advocating for statehood to considering independence might raise an eyebrow among those in Gov. Alejandro García Padilla’s camp. In 2013, Puerto Rico’s governor explained his disdain for statehood in an interview with CNN En Español. Not only does he denounce independence, but Padilla claimed that statehood “would be disastrous for the economy of Puerto Rico,” alleging the debacle would turn la isla del encanto into a “Latin American ghetto.” At the time, Pierluisi disagreed.
The possibility of statehood for the Caribbean nation has greatly diminished since native Puerto Ricans voted against by a 54-46 margin in 2012. What’s more, the U.S. General Accountability Office maintains that granting Puerto Rico statehood would result in more expenses that the island can’t afford. Along with the extra $2.3 billion in new taxes, the estimated $5.2 billion in new federal spending Puerto Rico would receive, only a range of $2-4 billion in new revenue would be left over for the federal government.
Now that the island is close to defaulting on their debt payments, representatives from both the U.S. and Puerto Rico have come up with plausible solutions, which may or may not grant Puerto Rico the rights each U.S. state possesses.
Earlier this year, Resident Commissioner Pierluisi proposed a bill that would allow Puerto Rico to declare bankruptcy despite their “commonwealth” status. Congress treated the Puerto Rico Chapter 9 Uniformity Act as a bailout, even though it wouldn’t cost the federal government. Last week (Dec. 9), U.S. Representative Sean Duffy (R-WI) proposed a new bill that addresses Puerto Rico’s snowballing financial crisis.
The Puerto Rico Financial Stability and Debt Restructuring Choice Act would help the island from completely defaulting on their debt payments at the top of 2016 by giving them the option “to accept the establishment of a 5-member Financial Stability Council with the authority to oversee the island’s financial planning and annual budgets.” The island would also have access to the same Chapter 9 bankruptcy process that America’s states do if the government allows an independent Financial Stability Council to oversee the island’s new direction toward balanced budgets and overall financial security.
Congress has yet to deliver a final verdict on each bill that would help save Puerto Rico from falling deeper into debt. Puerto Rico will eventually have to borrow money, but they’re not seeking for a “bailout” from the U.S. government. Although the White House has enforced their anti-bailout stance, they’ve urged Congress to explore the option of extending Chapter 9 to the island.
Governor Padilla emphasized that if Congress doesn’t act quickly, the island will face a “humanitarian crisis.” Puerto Rico’s next payment of $957 million is due Jan. 1, 2016. Until the House comes to a decision, the Puerto Rican government, as well as its citizens, will continue to suffer in limbo and pray for a miracle that can save the financial state of their homeland.