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How the Feds Helped Bankrupt Puerto Rico

By: Nick Zaiac - @NickZaiac - Jul 1, 2015, 12:46 pm
Puerto Rico's economy has suffered because of Washington politics.
Puerto Rico’s economy has suffered because of Washington politics. (La Hora)

EspañolPuerto Rico is full crisis mode, as signaled by Governor Alejandro García Padilla warning that the island’s debts are “not payable.” This is partially the fault of the island’s own government. The commonwealth has piled up a debt much larger as a percentage of GDP than any other state.

All major parties are to blame for over-promising and overspending, and the Puerto Rican government deserves most of the responsibility for the situation it finds itself in. Nevertheless, it is not entirely their fault.

The US federal government has many laws that disproportionately, and often inadvertently, harm the island. Policies that have little impact on the mainland can have dire consequences in Puerto Rico, partially because it’s a territory rather than a state, and partially because of the particulars of the island’s economy. A recent report on the island by economist Anne Krueger and others contains many such instances.

One notable example is the federal minimum wage. While only about 3 percent of workers on the mainland earn the minimum, 28 percent of hourly employees on the island work for this rate. Unemployment is notoriously high in Puerto Rico, currently sitting at 12.4 percent. Is there any wonder why? While there are many other factors in play, the federal minimum wage is certainly a burden on the territory.

The Jones Act is a quintessential example of a subsidy gone awry. The complex law basically states that all goods moved between US ports by ship must be owned, manned by, flagged, and built in the United States. It’s a subsidy to domestic shipbuilders, more than anything else, as international companies sailing with cheaper, foreign-built ships are barred from a major part of the US shipping market.

Now, how does this harm Puerto Rico? Because of the increased cost of shipping to the island, imports are more expensive, and almost all of the goods flowing to the island are imported. Notably, most electricity on the island is generated by burning imported oil. Similar problems are faced in places like Hawaii and Alaska. By attempting to subsidize shipbuilding, the Jones Act has inadvertently increased the cost of living for millions of people in numerous territories and states.

The list goes on and on. Environmental regulations combined with geographical factors and a poorly maintained power grid help make electricity rates high, even by Caribbean standards. Medicaid spending plays a major role in the territory’s fiscal problems. Around 60 percent of the island’s residents pay for healthcare with Medicaid or Medicare, and these programs pay doctors lower rates on the island than on the mainland. Not surprisingly, this has caused many doctors to flee and practice their trade elsewhere in the United States.

Furthermore, Puerto Rico had long been a tax haven for pharmaceutical companies, due to a special credit in the tax code. That carve out was rightfully allowed to expire about a decade ago, but the island’s economy took a hit as companies began to pull out.

The original credit was bad policy, as it encouraged companies to locate on the island just to take advantage of it. The local economy suffered because of Washington politics. This is crony capitalism, plain and simple, and the people of Puerto Rico are caught in the middle.

Now the question is, what can the federal government do to fix the problems it has caused? No matter the outcome of the current debt situation, federal law must be changed to avoid repeating this process in a few years. The repeal of regulatory subsidies like the Jones Act would be a good start, and lowering the federal minimum wage to a rate closer to that of the Commonwealth of the Northern Mariana Islands would certainly help get more people employed.

Yet, the biggest benefits might well come from a definitive answer to the territory’s political status. Many of the problems the island faces stem from sitting in constant limbo as a US territory, having neither independence nor statehood.

The former would allow Puerto Rico full self-determination, at the cost of being a part of the United States and the benefits that come along with it. Statehood, on the other hand, would grant representation in Congress, allowing the local government to draw attention to the particular problems facing the island. Right now, others hold the fate of the people of Puerto Rico in their hands.

The weight of regulations felt by Puerto Ricans is an afterthought in Washington. The answer to the “independence question” may not matter, but the current status is a problem that Puerto Ricans must face eventually. The best we can hope for is that the decision comes sooner rather than later.

Nick Zaiac Nick Zaiac

Nick Zaiac is a public-policy researcher in Washington, DC. He also serves as a policy analyst at the Maryland Public Policy Institute. His column, The DC Leviathan focuses on the often-ignored bureaucratic agencies, from the Department of the Interior to the General Services Administration. He has been published in the Baltimore Sun, City AM, CapX, and other outlets. Follow @NickZaiac.

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Newly Stateless Flee Their Homes in the Dominican Republic

By: Helena Ball - Jul 1, 2015, 11:27 am
Self-deportation to Haiti (Etant Dupain)

The Dominican Republic’s Department of Migration announced on Tuesday, June 30, that more than 25,000 people had “voluntarily returned to their country of origin” since June 18, the deadline for its new nationalization plan. On September 2013, the country’s Constitutional Court affirmed the definition of citizenship as established in the 2010 constitution: the redefined term excludes descendants of migrant workers, even if they were born in the country. The ruling, applied retroactively for almost a century, impacted hundreds of thousands Dominicans of Haitian descent. As a result of public outcry, the government then passed a special law that allows children of migrants with official identification to remain as citizens and those without documents to apply for a path to nationalization. In addition, the National Regularization Plan for Foreigners was created for those without any documentation to apply for legal status. However, an overwhelming number of applications, combined with procedural irregularities, have left many in stateless limbo. Executive Director of the Institute for Justice & Democracy in Haiti Brian Concannon told the PanAm Post most people should not be considered “self-deported.” He explained that they are voluntarily crossing the border only out of fear of violent expulsion by the police, and of being separated from all their possessions as the plan’s registration deadline expired. “There have been a series of attacks within the Dominican Republic against people perceived to be Haitian, and a lot of people have just come to the decision that the risks of [staying] are greater than the negatives of going to Haiti,” Concannon said. The Dominican Ministry of Foreign Affairs have also confirmed that more than 300,000 people registered for the regularization plan. Florida International University (FIU) law professor Ediberto Roman told the PanAm Post about his disagreement with the court’s retroactive decision, explaining that it stripped many of their citizenship and the ensuing laws now require them to provide proof of their status. “Think about the logic of [the law],” he said. “Yesterday you were a citizen; this morning you wake up, and you are undocumented, and after that you have to register to establish that you are not here illegally.” To process potential “repatriations” for those with an irregular immigration status, the Dominican government set up seven receiving centers across the border. Officials highlighted that final decisions will only take place on an individual basis without any “mass deportations.” US Ambassador in the Dominican Republic James Brewster visited the centers earlier this month, and said he has no doubt that “when people arrive here they will be treated well.” Nonetheless, suspicions arose following an event last week in Miami, where professor Roman made reference to alleged Haitian concentration camps in the Dominican Republic. He received hate mail and phone calls for his remarks, and later told the PanAm Post that it is was clearly a matter that needed to be “investigated further.” “All I can say is that I made reference to the media reports of it, I haven’t visited any of the camps,” Roman said. “I can only refer to what I have read in various accounts concerning it, and there have been very strong reactions by officials, reporters, and individuals associated with the Dominican Republic.” Last year, the Inter-American Court on Human Rights (IACHR) found the country’s nationalization law to be in violation of the American Convention of Human Rights. They also concluded that the government was guilty of depriving a group of Haitians of their freedom, following their expulsion from the country in the decade to 2000. Rather than heeding to reform appeals, the Dominican government denied the accusations, declared the jurisdiction of the IACHR unconstitutional, and forged ahead with their immigration policy. Writing on his personal blog yesterday, former Dominican President Leonel Fernández dismissed recent international and media criticism of the plan and set out to dissipate “myths.” He argued that cases of legal limbo were avoided with the passing of the special law, that accusations of racial discrimination were unfounded, that mass repatriations would not occur, and that claims that the plan was set up to fail were untrue and only part of an international campaign to discredit the nation. Irregularities in the regularization plans’ implementation, however, have led to a continued state of uncertainty. The Jesuit Service to Migrants in Jimani (a border town and one of the main points of access to Haiti) denounced over the weekend that the government’s newly opened offices in the province lacked the necessary resources to help migrants. The organization’s dispatch stated that almost 200 people waited on Friday for assistance in Jimani, but none received it. “In a maneuver to confuse and mislead national and international public opinion, the Ministry of Internal Affairs has asked the workers of this office … to open the offices, comply with a work schedule, but not assist anyone who comes by,” the dispatch stated, also mentioning irregularities in processing migrant’s documents in other centers around the country. Speaking at a regional summit in Guatemala on Saturday, Dominican Republic President Danilo Medina supported the country’s immigration reforms, emphasizing they were made within the boundaries of the constitution. Medina also highlighted the United States’ own problems with illegal immigration, and said that in order to rectify the Dominican migration system, they too had to make reforms. “We decided to take the initiative and give documentation to every person living in the country in accordance to [his or her] situation,” he said, adding that the guiding principles for reform were “strict respect for Dominican laws, and the protection of human rights.” Yet FIU professor Roman posits that even though some individuals affected by the laws are migrants, the majority of those dealing with the repercussions of the retroactivity are not: “By making it an immigration issue they make it more palatable because other countries are also struggling with them.” “This is not an immigration issue; it is a citizenship, constitutional law issue.”

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