Puerto Rico’s Many Crises: A Neocolonial Tale

The U.S. non-incorporated territory known as the Commonwealth of Puerto Rico (Estado Libre Asociado or ELA in Spanish) has come front and center in U.S. mainstream media and political circles. This never happens for a good reason and this time is not the exception. Puerto Rico is burdened by a debt crisis. It owes some $72 billion in public debt.

Though the focus has been on Puerto Rico’s debt crisis, the island is actually going through several crises. Acute economic problems have castigated Puerto Rico for more than a decade now. The economy has been contracting, labor participation has shrunk to 40%, and unemployment fluctuates between 11 and 12 percent.[1] The economic and debt crises have triggered the largest migration to the U.S. mainland in six decades. Over half a million people have left the island since 2000. Those who are leaving are young, educated, blue and white collar professionals. Migration exacerbates Puerto Rico’s problems as the tax base further shrinks.

The previous and current administration have worked to reduce the public debt by implementing many of the austerity measures recommended by the creditors including cutting spending and reducing the public labor sector. The current incumbent governor, Alejandro García Padilla, desperate for revenue, signed into law a bill to increase sales taxes from 7 percent to 11.5 percent—the highest in any state or territory of the United States. Both administrations have tightened the government’s belt and earned the enmity of the public for it. Public debt and the crises have created a political climate I have labelled as “one-termism.” The past three previous governors have not been reelected to a second term and the current incumbent will not seek reelection. This is very uncommon in Puerto Rican history and evidences widespread public discontent.

Puerto Rico’s crises may seem like an economic problem instead of a political one. It is both. The United States acquired the Puerto Rican archipelago in the aftermath of the Spanish–American War of 1898. Puerto Rico is under the territorial clause of the US Constitution and the plenary powers of U.S. Congress. The inhabitants of the islands are U.S. citizens and can vote to elect the local government, but they neither elect any voting representatives to Congress nor participate in presidential elections.

The political relationship of the U.S. and Puerto Rico is based on the colonial legal framework devised by the United States Supreme Court at the dawn of the the 20^th century. A number of cases brought before the supreme court in 1901, known as the Insular Cases, testing the relationship of Puerto Rico (and Hawaii and the Philippines) and the U.S., as well as the status of Puerto Ricans, resulted in decisions that affirmed that Puerto Rico was Foreign in a Domestic Sense. In these cases the SCOTUS held that full constitutional rights do not automatically extend to all places under American control. Inhabitants of unincorporated territories (like Puerto Rico) may lack some constitutional rights, even if they are citizens. These cases also established that Puerto Rico belonged to, but was not part of the United States. In short, the Constitution does not follow the flag.

Efrén Rivera Ramos, Dean of the School of Law at the University of Puerto Rico, has explained the meaning of Congress’s plenary powers over Puerto Rico. He argues that the government of a state of the union derives its powers from the people of the state, whereas the government of a territory owes its existence wholly to the U.S. Congress. In essence, in these cases the Supreme Court gave Congress a tool for colonialism. Light, subtle, colonialism but colonialism nonetheless. Thus the U.S. government can exert an extraordinary amount of power over Puerto Rico that it can’t exert over federated states.

These decisions are important because they established that American citizens living in Puerto Rico do not necessarily enjoy all the protections extended to U.S. citizens in the states of the Union and because of the powers it granted to Congress. Perhaps more importantly, these cases make evident that Puerto Rico, even to this day, is not sovereign which cripples the ability of any incumbent to effectively deal with the debt crisis.

The political and legal relationship between the U.S. and Puerto Rico forces the island to exist under certain parameters. For starters, Puerto Rico operates under the provisions of Article 27 of the US Merchant Marine Act of 1920, which requires the transport of all goods transiting in American waters between U.S. ports, including Puerto Rico, to be carried on U.S. ships. Known as the Cabotage Laws, this arrangement raises the prices of commodities on the island.

It has been argued that the Puerto Rican government can’t declare bankruptcy to restructure its debt because it is neither an independent country nor a state of the union. However, that was not the case until 1984 when Congress excluded the territory from Chapter 9 of the U.S. Bankruptcy Code. Whether this was done purposely in order to reassure bond holders, as the island engaged in heavy borrowing, is hard to prove. However, bond holders recently took the Puerto Rican government to court over its attempt to enact a local bankruptcy law (quiebra jibara). The bond holders argued that Congress had made clear in 1984 that it did not want Puerto Rico to be able to declare bankruptcy and/or unfulfilling its financial obligations.

Can the government of Puerto Rico be completely responsible for the crisis if it can’t even design its own monetary policies, declare bankruptcy or even obtain aid from the IMF? Congress holds extraordinary power over Puerto Rico, yet lawmakers operate as if Puerto Rico had gotten itself into these crises and as if it could come out of it on its own.

For over a year, Puerto Rican activists, public figures and elected officials fought for a partial federal bailout, for Congress to exempt Puerto Rico from the Cabotage laws, and to bring Puerto Rico back under the protection of Chapter 9 of the U.S. Bankruptcy Code. U.S. lawmakers hid behind the claim that the American public, taxpayers, would not support bailing Puerto Rico out—ignoring the fact that the inhabitants of Puerto Rico are U.S. citizens and pay taxes. Lawmakers also resorted to mental gymnastics to explain why Puerto Rico should not be able to restructure its debt—including a “new domino effect” theory that claims many U.S. cities and states may follow Puerto Rico’s example.

House Republicans came up with a bill that recommends even more austerity measures, create a fiscal oversight committee and operates above the elected Puerto Rican government. On June 30, 2016, President Obama signed into law the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). Among other provisions, the law establishes a Oversight Board to assist the Government of Puerto Rico dealing with the debt and financial crises. The committee will be composed by seven non-elected members chosen by Congress and the president. Puerto Rico’s governor will sit on the board, but won’t be able to vote.

PROMESA has been denounced as a colonial act. Self-government and sovereignty, within the form of a compact between the United States and Puerto Rico, were the cornerstones of the current political arrangement—at least in the official state narratives. The new law has actually exposed the limits of self-government and the complete absence of sovereignty. This is a political crisis—at least for the supporters of the ELA formula who are 45 to 49% of the Puerto Rican electorate.

It is now obvious that Puerto Rico did not become sovereign or cease to be a colony in 1952. Puerto Rico has fallen into a new category. The fiscal board is a colonial imposition but not in the form of U.S. customs receiverships imposed on Caribbean nations in the early 1900s. After all, Puerto Ricans are U.S. citizens and the island is a U.S. territory under international law. Then again, PROMESA is a colonial tool because unlike the American citizens living in Detroit, New York, or California, the inhabitants of the Puerto Rican archipelago do not have real representation in Congress which means they don’t have (and never had) a say in affecting the laws and policies that shape their lives. That includes PROMESA.

[1] “Puerto Rican Labor Force Participation Rate,” Trading Economics.