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.
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.
