US bill on Puerto Rico bailout described as "colonial-style takeover"

A U.S. House committee has just approved the Puerto Rico Oversight, Management and Economic Stability Act last Wednesday. The legislation gives control of the country's financial institutions to a board whose members are appointed by the U.S. government.

Activists and journalists warn that the bill would constitute a "colonial-style takeover" of Puerto Rico by the U.S. amid the country's crippling debt crisis. Journalist Juan Gonzalez explained: “The bill has provoked a furor among many island residents because it imposes a seven-member oversight board with dictatorial powers that harken back to colonial days.”

At one time, Puerto Rico was a Spanish colony and later a U.S. colony. There is disagreement in Puerto Rico about the relationship the country should have with the U.S. The two main parties differ — the Popular Democratic Party (PPD) wants the country to maintain the island's status with the US as a commonwealth while the New Progressive Party (PNP) wants Puerto Rico to be a state. The Puerto Rico Independence Party ( PIP) wants a separate country independent of the US. The PIP gets only about 5 percent of the vote while the other two get about 47 percent each. As long ago as 1914 Puerto Rico tried to gain independence from the US: In 1914, the Puerto Rican House of Delegates voted unanimously in favor of independence from the United States, but this was rejected by the U.S. Congress as "unconstitutional," and in violation of the 1900 Foraker Act.[59]

Puerto Rican activists condemn the present bill because it is meant just to protect bondholders, while "paving the way for massive cuts in public services." Gonzalez called the bill a poison pill that will involve a virtual takeover of the Puerto Rican economy. The board will have control of a five-year fiscal plan for Puerto Rico and would likely impose harsh cuts on social service spending and government pension funds. The bill would force the Puerto Rico government to reduce its minimum wage to $4.25 per hour for those under 25. The board would have to approve any new laws that are passed in Puerto Rico, and would also control capital investments in the country. As Gonzalez summed it up: “So you’re in essence creating … a control board that will be of nonresidents of the island running the financial affairs of Puerto Rico for the next five, possibly 10 years.” The bill has strong bi-partisan support, including from Hillary Clinton and the Obama administration. However, Bernie Sanders has condemned the bill as a gift for Wall Street. In a speech in the capital of Puerto Rico, San Juan, Sanders said:“It is unacceptable to me for the United States government to treat Puerto Rico like a colony during a time when its people are facing the worst fiscal and economic crisis in its history. In my view, the people of Puerto Rico must be empowered to determine their own destiny. When you establish a federal control board that says these unelected officials have the power to make major, major decisions impacting millions of people and they are accountable to nobody … that’s wrong.”

The bill is meant as a solution to Puerto Rico's long-standing debt crisis. The $72 billion in debt is unpayable according to the governor and has to be restructured. Much of the country's debt is owned by hedge funds. Sanders spoke out against what he called the "vulture capitalists" who wanted to impose crippling austerity measures on Puerto Rico that would hurt most the poor and working class. He said the hedge funds could afford to take a "massive haircut." Sanders said: “In the midst of this massive human crisis, it is morally unacceptable that billionaire hedge-fund managers have been calling for even more austerity in Puerto Rico. Austerity will not solve this crisis. As we all know from throughout the world, austerity will cause more suffering for working people and make the rich richer. We must vigorously oppose all efforts at austerity.It is unacceptable to me that vulture funds on Wall Street are demanding that Puerto Rico fire teachers, close schools, cut pensions and abolish the minimum wage so that they can reap huge profits off the suffering and the misery of the children and the people of Puerto Rico. We cannot allow that to happen. We will not allow that to happen.”The House will vote on the bill in June.

In contrast to Sanders, Clinton expressed support for the bill in spite of some reservations:“While I have serious concerns about several provisions in this bill, including the creation of an oversight board that would exert substantial control over Puerto Rico, I believe that we must move forward with this legislation,Otherwise, without any means of addressing this crisis, too many Puerto Ricans will continue to suffer. As this bill moves forward, I will work to ensure that concerns about the oversight board are addressed and any such entity includes members that will act in the best interest of Puerto Ricans — protecting their health, their pensions and their well-being.We can no longer sit idly by while hedge funds seek to maximize their profits at the island's expense.".

Sanders wants Congress to allow Puerto Rico to declare bankruptcy on its debt. The reworked version of the bill has the backing of the White House, Republican Speaker Paul Ryan, Democratic House Minority leader Nacy Pelosi, and progressive and conservative wings of both parties.