Puerto Rico: Light at the End of the Tunnel
EspañolPuerto Rico’s notorious financial press coverage lately stems from its credit rating downgrade into junk bond territory by the three global rating agencies.
The cut was driven by Puerto Rico’s serious liquidity issues and its limited ability to access funds over coming years in the municipal bond market. Puerto Rico is also experiencing a protracted contraction in its economy, and a declining population.
In response, the local government is looking to speculative hedge-funds investors to access cash, at a considerable premium. This strategy offends notions of sound administration and jeopardizes liquidity and future payments to existing bondholders; some say it’s a preamble to bankruptcy.
Puerto Rico has lately been called the Greece of the Caribbean, but Greece had access to a bailout and debt restructuring approved by the troika (the European Union, European Central Bank, and IMF).
There is no bailout or rescue packet in the works for Puerto Rico, federal or otherwise.
Puerto Rico is a territory not a state, subject to the plenary powers of Congress. It became a US territory in 1898, when it was transferred from Spain after the Spanish-American War as war booty. Puerto Ricans are US Citizens, yet they don’t vote for the president or have voting representation in the US Congress or Senate.
There is a separate US federal court system; US federal laws apply unless expressly excluded by particular legislation. Puerto Rico does not have any exchange control or currency regulations, nor does it have any separate tax or any other treatises. There isn’t even legal authority for the territory to file for bankruptcy.
To regain its financial health, Puerto Rico must reform. Quickly and profoundly.
In the deluge of press coverage related to the downgrade, many may have missed important changes occurring in Puerto Rico and Washington that directly impact the territory’s prospects. First, in 2012, 54 percent of Puerto Ricans voted to reject their current US territory status and instead favored statehood.
Second, Senators Ron Wyden (D-OR) and Martin Heinrich (D-NM) introduced S. 2020, the Puerto Rico Status Resolution Act, on February 12, 2014. This breakthrough bill provides for a federally-sponsored vote on the territory’s admission as a state. If a majority of voters affirm that they want Puerto Rico to become a state, the bill requires the president to transmit legislation to Congress to admit Puerto Rico to the Union.
Puerto Rico the state would gain the presidential vote, two seats in the US Senate and five in the House of Representatives — a major upgrade from the one non-voting delegate that currently represents the territory. Real political power is what Puerto Rico really needs. Only then can it proceed to reform the obsolete and out-of-date pseudo-New Deal economic system imbedded in the Commonwealth structure.
Puerto Rico faces critical challenges, but it can address them in the context of a system based on rule of law and democratic principles backed by the US Constitution. Puerto Rico’s future lies in its ballot boxes, and the political processes are in place and running.