Puerto Rico is not to blame for this colonial tragedy!

by NELSON A. DENIS  

PUERTO RICO has begun to default on its bond payments, for the first time since it became part of the United States, 117 years ago. If it fails to make interest payments on its $72 billion public debt, pension funds across the United States may be unable to meet their payment obligations. But if it were allowed to file for Chapter 9 bankruptcy protection, as cities and counties have done, every state will want that right.

For this reason, the Puerto Rico crisis is a national financial crisis, one that neither President Obama nor Congress has taken steps to resolve. Even a simple debt restructuring — in the unlikely event bondholders agreed to it — would not solve the mess. With a population of 3.6 million, every person on the island would need to pay $1,400 a year — 9 percent of Puerto Rico’s per-capita income — just to cover this year’s $5 billion principal and interest payments on the debt.

The problem is not Puerto Rico, or even the vulture funds that have refused to renegotiate the island’s debts: It’s the rigged capitalism the United States has forced on its Caribbean colony.

The United States “liberated” Puerto Rico from Spain in 1898. The following year, Hurricane San Ciriaco destroyed millions of dollars in property and nearly the entire year’s coffee crop. Banks swept in, buying land at a steep discount.

Even worse, in 1901, property taxes on every remaining farmer in Puerto Rico were raised. Farmers were forced to borrow from American banks at usurious rates; many lost their land to foreclosure. By 1930, 34 percent of land in use was managed on behalf of absentee owners.

A once-diversified island harvest (coffee, tobacco, sugar and fruit) was turned into a one-crop economy, dependent on sugar. By 1930, a collection of syndicates controlled all of the island’s sugar farms.

With no money, crops or land, Puerto Ricans left for cities like San Juan, Ponce and Mayagüez. The Legislature enacted a minimum-wage law, but the United States Supreme Court did not recognize the constitutionality of the law until decades later.

In the 1950s, the United States began giving companies tax exemptions to produce cheap products like bras and razors on the island. But once the corporations found cheaper labor in Asia, the factories disappeared.

The most unfair law of all is the Merchant Marine Act of 1920, also known as the Jones Act, which requires that every product that enters or leaves Puerto Rico — cars from Japan, engines from Germany, food from South America, medicine from Canada — must be carried on a United States ship.

A foreign-flagged vessel may directly enter Puerto Rico — but only after paying taxes, customs and import fees that often double the price of the goods it carries.

This is not a business model. It is a shakedown, a form of legalized price-fixing, the maritime version of a protection racket. From 1970 through 2010, the Jones Act cost Puerto Rico $29 billion.

If the Jones Act did not exist, neither would the island’s debt, and tens of thousands of maritime jobs would shift to the island from Jacksonville, Fla., where the giant carriers Crowley, Horizon Lines and Sea Star Line conduct their offloading and reloading for shipment to Puerto Rico.

Car prices are typically $6,000 higher in Puerto Rico than in mainland United States. Some products, like unprocessed food items, cost twice as much as on the mainland. The cost of living is higher in Puerto Rico, even though per-capita income is less than half that of Mississippi, the poorest state.

When a set of tax exemptions expired in 2006, pharmaceutical companies abandoned the island, the final blow to its manufacturing sector. Without a real private sector, the government became the island’s largest employer.

The island’s Legislature has done what creditors and bond rating agencies have demanded: Since 2010, it has laid off workers; raised prices for water, gasoline and electricity; increased property, sales and small-business taxes; cut public pensions and health benefits; raised the retirement age; and closed schools.

No surprise that over the past 10 years, nearly 400,000 Puerto Ricans have moved, many to Central Florida. With a shrinking tax base, Puerto Ricans are unable to meet this burden. Gov. Alejandro García Padilla calls it a “death spiral.”

What can be done? The Jones Act must be repealed, right away. Congress will have to overcome opposition from lobbyists for the Jacksonville-based carrier companies that control trade to the island.

All import fees levied on foreign-flagged vessels should be paid into the Puerto Rican Treasury, not the merchant marine. Any tax abatement deals for corporations should require the reinvestment of a stipulated percentage of profits into Puerto Rican infrastructure and industrial development. Puerto Rico must be permitted to develop its own shipping industry and, eventually, negotiate its own international trade agreements.

Independence is the only solution, for Puerto Rico and the United States. After 117 years, many Puerto Ricans are victims of Stockholm syndrome, fearful of losing the “safety net” of United States benefits. But it’s clear that the safety net is a chimera. A gradual transition to independence (like that of the Philippines in 1946) would allow both island and mainland to adjust to a sovereign and self-sustaining Republic of Puerto Rico. It is the only way to end this colonial tragedy.