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Puerto Rico is Bankrupt: Is the Worst Yet to Come?

The post Puerto Rico is Bankrupt: Is the Worst Yet to Come? appeared first on WhoWhatWhy.

The people of Puerto Rico have no say at the moment in the future of their debt-ridden island. The price of surviving bankruptcy has been a surrender of sovereignty to a federal oversight board that will control every law and every budget for years to come. That’s the story behind headlines heralding an “escape from disaster” and “second chance.”

Puerto Rico owes roughly $74 billion to bondholders and $49 billion for public employee pensions. It is the worst meltdown in the history of America’s bond market.  “There is no US precedent for anything of this scale or scope,” according to a report by former World Bank economist Anne Krueger.

In response, Congress enacted a new form of bankruptcy for the island last year (the PROMESA act). It empowers a seven-member Financial Oversight and Management Board – the “junta” as the Puerto Ricans call it – to override Puerto Rico’s democratically elected government.

Juan Torruella, an Appeals Court judge who was born on the island, calls the imposition of the junta, “the most denigrating, disrespectful, anti-democratic, and colonial act in our entire history with the United States.”

At the junta’s request, Puerto Rico entered a form of bankruptcy on May 3 and Supreme Court Chief Justice Roberts appointed a bankruptcy judge, Laura Taylor Swain. She held her first meeting in the capital of San Juan on May 17.

Swain told a packed courtroom that bankruptcy “will certainly involve pain.” In fact, the debt payments leading up to Puerto Rico’s bankruptcy have already created a tax burden that is 10 times higher than the average in a US state – $15,637 for every man, woman and child on the island.

For years, working and middle-class Puerto Ricans have been paying out an increasing share of their incomes to bond-holding investors.

Bleak House

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The board/junta has forced a 10-year fiscal plan on the Puerto Rican government, imposing extreme austerity on the island’s shrinking economy, which has been in recession for 9 of the past 10 years.

“You have an oversight board exercising governmental powers over the Commonwealth of Puerto Rico during its period of distress,” explains Carlos Cuevos, a New-York based bankruptcy lawyer of Puerto Rican descent, “and it will be for years to come. A lot of Puerto Ricans feel disenfranchised.”

The Board’s plan will cut $1 billion from healthcare, $300 million from education (closing almost 200 schools) and $200 million from a severely underfunded pension system. The University of Puerto Rico’s budget will be cut in half, losing $450 million.

“Hopefully, several years down the road, we will start to see growth and a new economy,” commented board member David Skeel.

It’s hard to see how the board/junta’s plan will help Puerto Ricans get out of the situation it calls “staggeringly grim.” The unemployment rate is already nearly twice the average of the rate in US states. Almost half of Puerto Ricans live below the poverty line. Even contributors to the websites of the American Enterprise Institute and Forbes are dissing the “draconian” plan as “doomed.” 


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Last modified on Friday, 26 May 2017 21:56

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