24 thoughts on “Puerto Rican debt to vulture funds, update

  1. No one except Puerto Rico is responsible for this mess. They saw it coming years ago and did not install new taxes and austerity at that time to combat the problem. All these new taxes and austerity measures are necessary but insufficient to deal with past errors. I have a place in my heart for Puerto Rico and find it so sad that I must state the obvious. It won’t be long before the mining companies move in to tear apart the mountains in central PR for its abundance of copper. Goodbye My Paradise!

    • Hi Waldo, I won’t deny that some Puerto Rico elite people are co-responsible for this. However, that does not make the majority of Puerto Ricans (the kids whose schools are cut away, sick people whose hospitals are cut away, etc.) solely responsible.

      There is a history here ever since the 1890s, when Puerto Ricans wanted to stop being a colony of Spain, but ended up being a colony of the USA.

      Some of the consequences of that:

      The crisis in Puerto Rico (like in Greece) has a complex of causes. For some of them, see

      https://en.wikipedia.org/wiki/Puerto_Rican_government-debt_crisis#Causes

      Included there: “Interest income paid to owners of bonds issued by the government of Puerto Rico and its subdivisions are exempt from federal, state, and local taxes (so called “triple tax exemption”).[f] Unlike most other US triple tax exempt bonds, Puerto Rican bonds retain tax exemption regardless of where the bond holder resides in the United States,[e][f][g] a marketing and sales advantage consequent to the restriction typically imposed on municipal bonds with triple tax exemption in which exemptions are available to bond holders that reside within the state or municipal subdivision that issues the bonds.”

      These bonds were largely bought by the hedge fund billionaires, who now advocate closing Puerto Rican schools. Which would lead to a further downward spiral for Puerto Rico.

      One of the other causes:

      “Puerto Rico is subject to the Commerce and Territorial Clause of the Constitution of the United States and, therefore, is restricted on how it can engage with other nations, sharing most of the opportunities and limitations that state governments have, albeit not being one. Puerto Rico is also subject to the different treaties and trade agreements ratified by the United States, as well as all other laws enacted at the federal level.

      One of the most significant economic restrictions imposed to Puerto Rico is the Merchant Marine Act of 1920, also known as the Jones Act, which prevents foreign-flagged ships from carrying cargo between two United States ports, a practice known as cabotage.[m][n][o][p][q] Because of the Jones Act, foreign ships inbound with goods from Central and South America, Western Europe, and Africa cannot stop in Puerto Rico, offload Puerto Rico-bound goods, load mainland-bound Puerto Rico-manufactured goods, and continue to U.S. ports. Instead, they must proceed directly to U.S. ports, where distributors break bulk and send Puerto Rico-bound manufactured goods to Puerto Rico across the ocean by U.S.-flagged ships.[r]

      Puerto Rican consumers ultimately bear the expense of transporting goods again across the Atlantic and Caribbean Sea on U.S.-flagged ships subject to the extremely high operating costs imposed by the Jones Act.[s] Elías Gutierrez, an economist, urban planner, and former director of the School of Planning of the University of Puerto Rico, asserts that, “Under the protection of federal statutes, a monopsony has been siphoning scarce resources from the poorest U.S. jurisdiction to sustain a segment of U.S. industry that has become uncompetitive due precisely to the protection it has enjoyed.”[10] He further explains that, “Although the Commonwealth of Puerto Rico and the United States should be considered the senior partners in a common market, the Cabotage laws, in practical terms, constitute a protective barrier that favors Mexican and Canadian ports of origin and destination against producers in Puerto Rico.”[10] The local government of Puerto Rico, however, has requested several times to the U.S. Congress to exclude Puerto Rico from the Jones Act restrictions. Each request has not been granted. [t]

      Another federal statute that contributed to the crisis was the expiration of the section 936 of the U.S. Internal Revenue Code which applied to Puerto Rico.[u] This section was critical for the economy of the island as it established tax exemptions for U.S. corporations that settled in Puerto Rico and allowed its subsidiaries operating in the island to send their earnings to the parent corporation at any time, without paying federal tax on corporate income. The whole economy of the island based itself around this privilege, and was and has been unable to recoup after its loss.[u]

      Puerto Rico also receives less federal funds when compared to states of the United States, although most residents of Puerto Rico do not pay federal income taxes.[v] The island is usually treated as if it were a state for all legislative purposes, albeit not enjoying all the benefits of being one.[w]

      In terms of monetary policy, Puerto Rico does not control its money supply, nor its coinage, nor its interest rates as it uses the U.S. dollar for currency and is subject to the Federal Reserve as its central bank even though it is not a state of the United States.”

      • Everyone, including the elites, turned a blind eye to what was going on in Puerto Rico. The people were working an underground economy in which minimal or no taxes were paid. No one is exempt from blame in this fiasco. I know. I have spoken to the working class, the banking class and the mortgaged class. All taxes were placed so low that everyone was spending money on homes and cars that they could not afford. Now the vultures have come to roost.

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