Islanders used to call it “La isla del encanto” – the isle of enchantment – a reminder of the Caribbean paradise the US territory tax haven once was. But with a crippling public debt of over US$72 billion, rampant crime and unemployment rates, and a diaspora of 80,000 Puerto Ricans –predominantly of the middle class – per year to the continental US, Puerto Rico may seem like anything but. Though the island has made headlines only recently, its woes have been diagnosed and witnessed by its inhabitants for the better part of two decades.
Between 1970 and 2000, Puerto Rico had emerged as one of the leading economies in the Caribbean, through a massive shift towards manufacture. The economic boom was achieved through the awarding of patents to pharmaceutical companies, tax exemptions under the Section 936 of the IRS Code, and lower environmental safety standards than the rest of the continental states, attracting petrochemical industries.
Unfortunately, Puerto Rico’s growth was short-lived; the Section 936 expired, operational costs in the island crept up, and the Environmental Protection Agency (EPA) enforced stricter environmental policy on the island; After the enactment of the North Atlantic Free Trade Act (NAFTA) companies began moving their operations to other Latin American countries where operational costs were substantially lower than in Puerto Rico.
The economy however was still growing, and the government rather than cut back on expenditures and encourage investment began aggressively spending and borrowing to employ those who had lost their jobs due to outsourcing. This trend however, became unsustainable as the economy continued contracting, and the local government lacked the tools of a sovereign nation to conduct its own monetary policy to complement a fiscal policy.
Today, the local government has already defaulted on numerous obligations including a US$399 million on May 2, 2016, and still is struggling to provide basic services for its citizens. The healthcare system is expected to suffer budget cuts forcing the 60 percent of inhabitants who receive Medicare and Medicaid to seek other alternatives. It is also expected to skip payment of US$1.9 billion on July 1. Cognizant of the obstacles facing the commonwealth, representatives from the island have traveled to Washington DC to lobby for the inclusion of Puerto Rico in the Chapter 9 of the US Bankruptcy Code that would allow Puerto Rico to restructure its debt, but the island was excluded from in 1984.
It was not until April of this year, however that the Federal government addressed the debt crisis on the island in the form of the Puerto Rico, Oversight, Management and Economic Stability Act (PROMESA). Though House Committee of Natural Resources has yet to vote on the proposal before it can advance, the bill aims to establish a financial oversight board similar to the one enacted in Washington DC between 1995 and 2011 with the goal of approving the budget and expenditures of the local government, as well as restructuring its debt.
The PROMESA bill states that no legislation enacted by the commonwealth may supersede or regulate the financial oversight board. Members will be composed of seven members appointed by the President of the United States, of which only one must have a physical residence on the island, and an additional ex officio position filled by the ex-governor García Padilla. The bill also grants the board the power to bypass any local legislation it sees fit to carry out its mission, including a bill enacted by the Puerto Rican Senate this past April which effectively suspended all debt payments and obligations so as to ensure that “essential services” are provided to the people of Puerto Rico. Residents of the island fear that the board would inevitably propose harsh austerity measures including firing thousands of government employees. This blank check has produced concern among some, including governor García Padilla himself, who view it as the return of colonialism to the island by a number of Puerto Ricans on the island.
Yet despite the concerns of the impunity the oversight board would possess most Puerto Ricans tend to forget that colonialism has never truly left the island. While the island just celebrated its primaries this past Saturday for the two major political parties on the island, as well as the democratic primary for the President of the US, residents of the island remain unable to vote in the general US election for the President. Puerto Ricans serve in the United States Army, pay most federal taxes – with the exception of the personal income tax – and possess full US citizenship. Yet this second-class status is only tied to the physical residence of a citizen. In order to fully benefit from the benefits of US citizenship, a US citizen living in Puerto Rico need only move to a permanent residence in any of the 50 states.
The legal argument the persistence of this colonial system lies in a century old series of US Supreme Court rulings known as the insular cases. Drafted around the same time as Plessy v. Ferguson, the court established that the recent US acquisitions from the Spanish American War, including Puerto Rico were inhabited by alien races not yet prepared for self-government, or admission admission as states. In the past decades, the United States has granted Puerto Rico its right to self-government for exclusively insular manners. This lack of oversight and limited authority has created a unique environment for the development of rampant corruption. Contracts are awarded by the government for political favors during election years regardless of their viability.
Although the fiscal oversight board is an unequivocal suppression of democracy, Puerto Ricans have willingly perpetuated the current colonial system for the last 65 years. Past referendums conducted on the island for the status have demonstrated Puerto Rican support for the status quo with the exception of the last plebiscite conducted in 2012 where among the listed options statehood won by 54 percent. Politics on the island are organized around preference for status among status-quo, statehood, and independence advocates; of these three options, independence is the only choice that Puerto Ricans can decide by themselves. Both status quo, and statehood are up to the US Congress to decide, not Puerto Rico.
That being said, the board, if enacted, will not have to worry about the political cost of its actions, unlike the local government. It will be able to approve a feasible budget without fears of loosing support from the municipality mayors that heavily influence politics in the island. Despite the fiscal control board will not offer any true concrete solutions to Puerto Rico’s debt crisis, it will hopefully begin to awaken islanders to the failed dream that the commonwealth system has demonstrated itself to be for the past 65 years. The promise of colonialism was never meant as a viable model, rather a stepping stone towards true sovereignty. Like the debt crisis itself, the mere possibility of the fiscal oversight board will produce conversations aimed at change, be it towards formal incorporation as a state, or as an independent nation.