Puerto Rico’s debt crisis has been in a downward trajectory for years as the U.S. Territory’s debt has ballooned to over $120 billion. On May 17, federal court proceedings began with it’s creditors on how to restructure the debt. The territory is ineligible for Chapter 9 bankruptcy, like what the City of Detroit filed, causing Puerto Rico to seek relief in federal court.
The impacts of the debt crisis have been devastating for Puerto Rico and its residents. Public health and infrastructure projects have been place on hold, a brain drain caused by drastic education cuts has been forcing people to migrate from the territory, and will likely have long-lasting economic consequences for the region, and government workers’ pensions will take substantial losses.
“The failings of the local government to really develop and solve the economic development policy or strategy have condemned Puerto Rico to the collapse that we have slowly, and more recently, more quickly, seen in the economy. I blame congress, I blame the local government, the elite, and I blame the bondholders each for not doing what they had to do to ensure that we did not end up where we are,” Dr. Hector Cordero Guzman, a Professor at the Marxe School of Public and International Affairs at Baruch College of the City University of New York, told me in a phone interview.
Vulture hedge funds swooped into Puerto Rico to capitalize on the debt crisis, buying up bonds after prices dropped and now hope in court to recover as close to 100 percent of the original bond value as possible. Obama signed the bipartisan Puerto Rico Oversight, Management and Economic Stability Act in June 2016, forcing those hedge funds to negotiate with the Puerto Rican Government, though Slate reported, the act keeps Puerto Rico, “reliant on well-heeled lawyers and consultants for the foreseeable future—all without contemplating the new revenue needed to pay for them,” likely putting Puerto Rico’s economy on hold for years until the negotiations eventually come to an agreement.
While the hedge funds may not profit as much as they would have initially liked off Puerto Rico’s crisis, younger generations are paying the price as the largest budget cuts in public higher education in the history of the United States paralyze local universities. Students have led protests and several faculty have resigned and protested.
Dr. Cordero-Guzman added, “students are up in arms, and many campuses of the university are closed. There are threats to universally do away with the entire university, and then end up blaming the students for having closed it, when this was perhaps the plan all along. It’s troublesome and disconcerting, and the public should really be informed about what Puerto Rico, and University of Puerto Rico has been asked to do right now.” He argued the university system is the largest source of human capital for Puerto Rico, and the debt crisis will not be solved by allowing the largest driver of economic growth in the region to disappear. “Puerto Rico needs capital, and Puerto Rico needs ideas for the development of particular industry media, in tourism, in services, so it can be globally competitive. That requires funding, that requires capital, that requires support, that requires infrastructure, and on the case of bankruptcy, it really doesn’t have the resources to be able to do this thing.”
Dr. Guzman-Cordero noted that the current crisis in Puerto Rico needs immediate and long-term economic development solutions through policy to end the crisis. If the Puerto Rican economy continues to decline, the debt crisis will only worsen. He added, “the question is, do we want to let Puerto Rico go down on a debt spiral, and migration to continue on an accelerated pace, and giant segments of the population move to the mainland? Or are we going to do something to stop that debt spiral? The only way to do it is through investment and resources, and concerted know-how being put to use in Puerto Rico. As opposed to a control board simply asking for budget cuts, and treating this as an accounting exercise.”