Making Sense of the Puerto Rican Debt Crisis

Puerto Rico is broke and in debt to the tune of $73 billion. It needs to be able to declare bankruptcy which can’t do unless the US Congress lets them. There is a bill (pdf) in the works that will do that and provide financial assistance but there are a group of people who don’t want Congress to pass a plan for Puerto Rico. Those people have been running ads claiming that any help from congress would hurt the American mainland. They fail to mention who it will hurt. The reality is it will hurt only them. Who are these people who want Puerto Rico to pay its bill at thee expense of the majority of Puerto Ricans? They are the hedge fund owners who claim they will lose millions if Puerto Rico is allowed to restructure its general obligation debt.

To pay back its creditors, Puerto Rico has resorted to extreme measures including delaying tax refunds to its citizens, increasing sales tax by more than 50%, and instituting massive cuts to education, healthcare, and social services. Unsurprisingly, Puerto Rico’s most disenfranchised populations (including Medicaid and Medicare enrollees, incarcerated people, and families with special needs children) are shouldering the burden of those measures.

The crisis is driving more Puerto Ricans off the island and onto the mainland, fueling an ongoing “population swap” in which unemployed, young Puerto Ricans leave the island in search of work, while hundreds of wealthy Americans move onto to the island because the “Millionaire’s Law” and other policies have turned it into a “fiscal paradise” for the wealthy. Indeed, 10% of the island’s population has left in the last ten years and today as many as 3,000 Puerto Ricans are fleeing each week. This massive depopulation has eroded the availability of services in Puerto Rico and shrunk its tax base, which the government relies on to pay for pensions, services, and its debt.

Meanwhile, wealthy financiers are flocking to the island to take advantage of tax exemptions and cuts on corporate taxes, personal income, and capital gains. At a recent investment conference, billionaire hedge fund manager John Paulson predicted Puerto Rico would become the “Singapore of the Caribbean” –that is, an extremely wealthy tax haven.

This report details how, in order to pay back its creditors, the Puerto Rican government has implemented a severe austerity budget that is is creating a humanitarian crisis on the island and threatening Puerto Ricans’ access to basic services including healthcare, education, and even electricity.

Meanwhile, the hedge funds that reportedly own nearly 50% of Puerto Rico’s debt continue using vulture tactics to win as big a payday as possible at the expense of Puerto Ricans. To pay back its creditors, Puerto Rico has resorted to extreme measures including delaying tax refunds to its citizens, increasing sales tax by more than 50%, and instituting massive cuts to education, healthcare, and social services. Unsurprisingly, Puerto Rico’s most disenfranchised populations (including Medicaid and Medicare enrollees, incarcerated people, and families with special needs children) are shouldering the burden of those measures.

The crisis is driving more Puerto Ricans off the island and onto the mainland, fueling an ongoing “population swap” in which unemployed, young Puerto Ricans leave the island in search of work, while hundreds of wealthy Americans move onto to the island because the “Millionaire’s Law” and other policies have turned it into a “fiscal paradise” for the wealthy. Indeed, 10% of the island’s population has left in the last ten years and today as many as 3,000 Puerto Ricans are fleeing each week. This massive depopulation has eroded the availability of services in Puerto Rico and shrunk its tax base, which the government relies on to pay for pensions, services, and its debt.

Meanwhile, wealthy financiers are flocking to the island to take advantage of tax exemptions and cuts on corporate taxes, personal income, and capital gains. At a recent investment conference, billionaire hedge fund manager John Paulson predicted Puerto Rico would become the “Singapore of the Caribbean” –that is, an extremely wealthy tax haven.

This report details how, in order to pay back its creditors, the Puerto Rican government has implemented a severe austerity budget that is is creating a humanitarian crisis on the island and threatening Puerto Ricans’ access to basic services including healthcare, education, and even electricity.

Meanwhile, the hedge funds that reportedly own nearly 50% of Puerto Rico’s debt continue using vulture tactics to win as big a payday as possible at the expense of Puerto Ricans.

Once again the host of HBO’s “Last Week Tonight,” John Oliver comes to the rescue, with an assist from Hamilton creator Lyn-Manual Miranda, making sense of just what is happening.

At issue is nearly 50 percent of the population living in poverty due to a collapsing manufacturing base, as the bill has come due because of tax incentives given to rich investors by a government that borrowed heavily.

The island’s government has already defaulted on bond payments and now faces investors and hedge funds — described as “vulture funds” — clamoring for their money even if it means shutting down schools, as well as hospitals just when the island is facing a medical crisis from the mosquito-borne Zika virus.

“The good news here is, Congress is now considering a bipartisan bill that would give Puerto Rico some breathing room to negotiate with creditors,” Oliver explained as he noted, “This could be a real help to Puerto Rico.”

Oliver devoted special attention to hedge funds which he believes are behind a “dark money” multi-million dollar campaign designed to keep Congress from helping to restructure the debt, or possibly changing a law that keeps Puerto Rico from going into Chapter 9 bankruptcy.

Once again, the Shock Doctrine at its finest. Milton Friedman would be so proud.