The people of Puerto Rico face strict austerity measures, including a huge cut in the minimum wage, if President Barack Obama and Congress are able to pass their so-called PROMESA bailout package.
Obama urged senators to approve the bill quickly during his weekly radio address this weekend.
Even though the 3.5 million residents of the US territory can’t vote for the president or federal legislators in the general election, they could be forced to swallow the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), which prioritizes the interests of vulture funds and other bondholders.
Puerto Rico is more than $72 billion in debt, with a poverty rate of 45 percent, thanks to a colonial hangover and years of exploitation by Washington.
Residents are abandoning the island in search of better opportunities, particularly skilled professionals such as doctors, creating a shortage in necessary services.
With a looming July 1 deadline for a $2 billion payment, Obama and Congress are using the opportunity to push the austerity agenda they’ve inflicted on much of the world following the 2008 financial crisis caused by their donors on Wall Street.
Puerto Rico Governor Alejandra Garcia Padilla maintains it is more important to pay teachers than vulture funds, standing by an April decision to pass an emergency law allowing the island to default on its May 1 payment of $422 million.
At a time when hospitals have power blackouts and pensions are under threat, PROMESA (which also means "promise" in Spanish) calls for an oversight board to control its finances and implement a severe cut to the minimum wage for those under 25 years old - from $7.24 to $4.25.
The board would consist of four Republican appointees, two by Congressional Democrats, and one by Obama.
The latter is expected to be from Puerto Rico, but because voters there have yet to become the 51st US state, despite a number of chances in the past, their fate is being decided by officials they aren’t able to vote for - or against (except in the presidential primaries).
The bill is supported by Obama, Republican House Speaker Paul Ryan, and Democratic House Minority Leader Nancy Pelosi, among others.
Democratic presidential candidate Hillary Clinton is also in favor of the (mostly) bipartisan deal.
"We must move forward with this legislation," she said, while still maintaining concerns about parts of the bill including the fact that the oversight board could have too much power. "Otherwise, without any means of addressing this crisis, too many Puerto Ricans will continue to suffer."
The one prominent leader who’s been pushing back on this bill is Clinton’s primary opponent, Vermont Senator Bernie Sanders.
He said he was “proud to stand in strong opposition to this bill” as it “looks to benefit Wall Street vultures first and foremost,” and condemned the bill for treating the island “like a colony.”
Padilla has argued for access to Chapter 9 of the Bankruptcy code and outlined a five-year plan which, Democracy Now reports, includes increasing college tuition, cutting investment in healthcare, and handing roads and ports over to for-profit companies, in exchange for reducing payments to its creditors.
It’s a plan which echoes last year's Greek bailout - and benefits many of the same investors.
BANKRUPTCY
Puerto Rico is unable to file for bankruptcy, after an amendment made to US law exempted the territory from the Chapter 9 option.
The reasons for this change are unclear.
“There is no legislative history to explain why Puerto Rico was singled out,” Illinois Senator Dick Durbin said.
Padilla, Obama, Sanders, and Green Party presidential candidate Jill Stein have all said Congress should grant the island bankruptcy rights, but they have failed to do so.
TAX BREAKS
Back in the 1970s the US introduced corporation tax breaks on goods made in Puerto Rico. This led to a drug-manufacturing boom, but not enough jobs to lift the island out of poverty.
By the time Congress phased out corporate welfare in 2006, the island suffered from lost jobs and revenue.
Puerto Rico passed two laws to attract investment in 2012.
Act 20 “entices hedge funds, family offices, professional service firms, and even software developers to locate there by taxing their corporate profits from exported services at a flat 4 percent rate and allowing those profits to be paid out to the owners free of Puerto Rico income tax,” Forbes reports.
Act 22 gives new residents “a 0 percent rate on locally-sourced interest and dividends as well as all capital gains accrued after they become residents, a particular benefit for active traders.”
BONDS
Municipal bonds in Puerto Rico are “triple tax exempt,” attracting Wall Street investment. Bloomberg reports more than $30 billion of commonwealth securities are held by mutual funds and investment managers.
Puerto Rico sold bonds to help with its debt and cover expenses, according to Bloomberg, and turned to creditors and Washington for help last year when it had trouble paying off those debts.
HEDGE AND VENTURE CAPITAL FUNDS
Puerto Rico’s debt has attracted hedge and vulture funds which stand to profit from the island’s staggering debt. Among the owners of their debt are companies which lobby Washington, including Blue Mountain Capital and Stone Lion Capital according to the Nation, and target other vulnerable economies such as Greece.
An audit found Puerto Rico is spending between 14 to 25 percent of government revenue on debt payments, while the territory’s constitution sets a maximum of 15 percent.
While this may seem like a bad deal for the people of Puerto Rico, a PR firm headed by former Obama staffers, SKD Knickerbocker, has a $3.4 million contract to help push it through and smooth out the island’s image during the crisis, reports Breitbart.
Of course, all of this could be solved if Puerto Rico raised taxes on the corporations who have profited off the back of its people for decades (or centuries, in the case of the sugar industry).
UCLA professor Cesar Ayala told the Nation that US corporations repatriated $313 billion from Puerto Rico between 2004-2013, enough to repay the debt fourfold.