Last year, Puerto Rico's governor announced it simply did not have the money to repay its US$72 billion debt — on bonds owed mainly to US financiers.
On May 2, the US's Caribbean colony defaulted on $400 million that was due on that day. A further $2 billion is due on June 1.
Over the past year, the Puerto Rican government has sought to renegotiate its debt with creditors, but they have stuck firm to demands the debt be paid in full. The US government, meanwhile, sat on its hands, as did Congress. Now the White House has finally taken notice and is urging Congress to do something.
This debt crisis has been gathering steam for the past 10 years. The response of the neoliberal Puerto Rican government has been to borrow more — and impose austerity to place the debt burden on the shoulders of its 3.5 million people.
Austerity
In 2009, then-governor Luis Fortuno laid off 30,000 government workers despite a huge general strike. In 2013, he privatised Luis Munoz Marin Airport, the Teodoro Moscoso Bridge, and toll highways. He gutted the pension system. Austerity has continued under his successors.
The island has been in a depression for the past 10 years, with its gross national product declining by 13%. It has a higher unemployment rate than any of the US's 50 states. Government debt to pay for basic services has increased.
Despite Puerto Rico being poorer than any of the 50 states, Puerto Ricans now pay the highest electricity rates and the highest sales tax. All the proceeds of the sales tax must go to pay the bondholders.
All the bonds that were sold to financiers in the US to cover basic services from electricity to education to healthcare and so on must be paid before anything can be spent to alleviate the dire situation Puerto Ricans face.
The cuts made to healthcare are so severe it has caused a health crisis. To add imperialist insult to injury, last June the federal agency in charge of Medicare and Medicaid announced that it was slashing its allotment to Puerto Rico by 11%, while raising reimbursements to the 50 states by 3%.
The cuts will mean a loss of $300 million to the island's healthcare system, a system already suffering from a cap imposed for decades at only 70% of whatever the federal government gives per capita to the states.
Since Puerto Rico is poorer than the poorest of the 50 states, many of its citizens rely on Medicaid, the miserly program for the poor.
Even the White House warns that the recent outbreak of the Zika virus that has plagued much of Latin America and is now on the island cannot be treated because of the collapse of the health system.
Humanitarian crisis
Very high unemployment in the past 20-30 years has risen due to the depression of the past 10 years. Participation in the workforce stands at only 45%.
These and many other indicators add up to a major humanitarian as well as a debt crisis. The result has been a mass migration to the US mainland.
Puerto Ricans are US citizens, and can do so without the restrictions and deportations to which other Latin Americans (except Cubans) are subjected. One thousand people flee the island each week.
As a territory of the US, US courts and Congress have the final say over all Puerto Rican laws. Because of a law passed by Congress in the 1980s, Puerto Rico cannot even declare bankruptcy — an option all US states and cities have.
Even if it did, US courts would decide how much the creditors would get and how much the Puerto Rican government would be allowed to restore some essential services, and in what order all this would be paid.
The White House has ruled out any bailout for Puerto Rico. It proposes a vague kind of federally-supervised bankruptcy to renegotiate with the creditors when and how much they would be paid. The Puerto Rican government would agree to further cuts and austerity. Actually, this is what the neoliberal government has been proposing to its creditors, which they have rejected.
The Republican-controlled Congress says that even this proposal amounts to a “bailout,” and instead sides with the creditors.
Neither proposal would solve the immediate budget crisis, nor its underlying cause — the status of Puerto Rico as a colony. Puerto Rico was a Spanish colony for a few centuries before it was wrested away by the US in the Spanish-American war in the first years of the 20th century.
Colony
Since then, it has been an outright colony of the US, although the US seeks to hide this fact by calling it a “territory”. But a series of US Supreme Court decisions made soon after the US captured the island makes clear its colonial status.
For example, one decision ruled that only those parts of the US Constitution apply to Puerto Rico that Congress chooses to apply. This ruling also stated that Puerto Rico belonged to, but was not part of, the US. All major decisions involving the island are dependent on acts of Congress as interpreted by US courts.
Just this past year, for example, Puerto Rico passed its own bankruptcy law that was then overturned by a US court. When its government tried to raise taxes on Walmart stores on the island to help alleviate the crisis, a New York court overruled it.
US capitalists have exploited Puerto Rico ever since it became a US colony, sucking untold hundreds of billions of dollars out of the country. At first, this was done mainly through sugar plantations. The forms of this exploitation have changed since. It is useful to look at what developed after the Second World War.
In the face of the rise of the colonial revolution worldwide, and the rise of anti-colonial nationalism in Puerto Rico, some concessions were made. A limited form of self-government was enacted. The Spanish language was allowed in public schools. Puerto Ricans could elect their own governors, but still under the control of Congress, and so forth.
A new phase of imperialist exploitation was encouraged, industrialisation.
US corporations were encouraged to invest by turning the island into a huge tax haven. Mass migration of unskilled labour to the mainland was encouraged, to alleviate poverty somewhat, while still retaining a reservoir of cheap labour.
In the 1960s, faced with the victory of the Cuban Revolution and the rise of revolutionary movements in Latin America, these policies were intensified to turn the island into a “showcase” of the benefits of US imperialism. This was coupled with severe repression of any pro-independence activities, and the building of a string of US military bases.
For a time, these policies did improve conditions in Puerto Rico. Annual growth rates jumped to 6% in the '50s, but gradually dropped to 4% in the '70s. They were stagnant in the 1980s.
By then, Puerto Rico had become the most profitable place in the world for US corporations. But soon, the cheap labour model started to find greener pastures in China, Bangladesh, Mexico, Vietnam and elsewhere.
Vulture capitalism
In 1996, Congress began to phase out the tax breaks, which were completely gone by 2006. Big US corporations pulled out.
As the economy collapsed, the phase of vulture financial capitalism moved in, with loans to keep the country afloat. More loans were needed to repay earlier loans, in a vicious circle leading up to the present crisis. Tens of billions of dollars have flown from the island to the US's richest people.
The fact is, with the end of the Cold War, the US does not need Puerto Rico to be a “showcase” any more. It also has other sources of cheap labour. The White House and Congress have no long term solutions, although Puerto Rico becoming the US's Greece is embarrassing politically.
What should socialists on the US mainland advocate, in conjunction with our fellow citizens on the island? We can appeal to progressives and even to all who retain an elementary sense of fairness and humanity to demand the full cancellation of the debt, which is obviously unpayable.
The US government, which paid out billions to bail out the banks in the Great Recession, should be pressed to rebuild the island's economy, a partial reparation for the exploitation of Puerto Rico for over a century.
It will take time and a new mass movement to change Puerto Rico's status as a colony, but we should encourage every move that increases sovereignty for the island. Independence should be the goal.
We should educate about the true history of colonial oppression of Puerto Rico.
Finally, we should work to build a socialist movement in the US and on the island. That will help in fighting for those immediate demands and others, and point the way toward eliminating imperialist exploitation by cutting out its root, capitalism, and replacing it with a socialist commonwealth. Puerto Rico might realise that goal first.