Puerto Rico voters overwhelmingly opt for state-hood but with abysmal turnout

(June 11)In a vote with historically low participation almost all those Puerto Ricans who voted today voted in favor of statehood. The other choices were independence or the present commonwealth status.

A recent tweet sums up the result: PUERTO RICO REFERENDUM- Become U.S. state: 97.1%- Independence: 1.5%- Status quo: 1.3% Turnout: 23%.

The turnout was historically low. The vote is non-binding. Ricardo Rossello the governor of the island and his government had been pushing for a vote for statehood as the best way to deal with Puerto Rico's debt. However, the two main parties had pushed for a boycott of the vote. This shows up in the turnout and the overwhelming result in favor of statehood.

Hector Ferrer, president of the Popular Democratic Party (PPD) which favors the present commonwealth status pointed out that most voters went to the beach or did everything but vote and claimed that most people did not actually want statehood. Only about 500,000 votes were cast. In the last vote in 2012 more than 1.9 voted with 800,000 choosing statehood. In 1992 almost 2 million Puerto Ricans voted.

In spite of the dismal turnout, Gov. Rosello said:"An overwhelming majority voted for statehood. Today we are sending a strong and clear message for equal rights as American citizens. This was a democratic process and statehood got a historic 97 percent of the vote. The federal government cannot ignore the results of this plebiscite and the will of our people".

As a US territory Puerto Rico does not elect members of the US Congress, but it does have a representative in Congress Resident Commissioner Jenniffer Gonzalez. She is pro-statehood and is forming a "Friends of Puerto Rico Caucus" that would press for statehood. She said: “As Resident Commissioner I will take this to Congress and defend it. I am taking it not just to Congress but to other forums, such as the Organization of American States."

Federico de Jesús, with FDJ Solutions in Washington is a former Obama and Puerto Rico government official. De Jesus says the plebiscite was unnecessary and costly:“This vote was a waste or precious resources at a time of severe fiscal constraints. Congress laid out a process through a provision in a 2014 law that said that if Puerto Rico wanted the federal government to pay attention to another status referendum, it had to follow certain rules. The current government of the Island entered the process and when it took longer than they wanted they decided to ignore the U.S. Justice Department’s plea for more time to evaluate the validity of the ballot language...Sadly, today's vote will thus go down in history as yet another non-binding glorified poll with no real effect on resolving Puerto Rico's relationship with the United States.”

Aside from the issues brought up by de Jesus, the low turnout will also provide a good reason for the US Congress to reject the results. It is ultimately up to the Congress to decide if it wished to take up the issue of the status of the island. Although the 2012 vote also favored statehood the US Congress never took up the matter.

Another report puts the debt load in Puerto Rico at upwards of $120 billion. The US Congress may not be interested in adding another state with a huge debt load. US Representative Luis Gutierrez, whose parents are from the island said that Congress would not do anything. Puerto Rico voters also tend to be pro-Democratic, another reason why the present Congress will not act on the referendum. The Congress seems unlikely to adopt a new state that would immediately require a federal bailout.

Nevertheless, Governor Rossello said of the present relationship: "The bad side of it is that we are not a full part of the United States. We're a territory or a colonial territory. We're aiming to change that and of course, from my perspective, I'd want Puerto Rico to become the 51st state of the nation."

US bill provides oversight and restructuring on Puerto Rico debt

Puerto Rico owes a whopping $70 billion dollars. On Friday, July 1, about $2 billion in principal and interest payments are due to be paid.

Even though the U.S. Senate is in the process of approving a bill to restructure the debt, Puerto Rico Governor Alejandro Padilla made it clear that he would still not pay bondholders, saying: “On July 1, 2016, Puerto Rico will default on more than $1 billion in general obligation bonds, the island’s senior credits protected by a constitutional lien on revenues.” This will be the first time the US territory has ever missed a payment on its $13 billion general obligation, debt that according to the Puerto Rican constitution has top claim on government funds. Padilla claimed he would not have enough to make the payment even if he shut down the government.

A bill in the U.S. Senate will give the island the ability to cut its debt and put a hold on any bondholder lawsuits which could make the territory unable to pay schools, police, and heath care. The Senate voted today, June 29 to pass the measure, 68 to 32. The margin represents a super-majority of votes. The bill is almost identical to one that passed the House of Representatives earlier. A final vote could come as early as tonight allowing Obama to sign it before July 1st. Obama has indicated he would sign the bill. The default on Friday will be the first from a state-level borrower since Arkansas back in 1933. However, Puerto Rico has already defaulted on debt issued by the Government Development Bank and two other agencies. It also owes contractors and suppliers another $ 2 billion.

Nearly half of the territory's 3.5 million residents live in poverty. Unlike a city such as Detroit, Puerto Rico cannot file for bankruptcy protection to prevent an onslaught of lawsuits if it defaults. The new bill will provide a federal control board that will have the power to oversee the territory's budget and a debt restructuring in court if this is needed. The Obama administration has supported the legislation and lobbied for it. Investors will still seek to ensure that the government cuts spending and becomes more efficient. The bill in effect takes away fiscal independence from Puerto Rico. Securities analystDaniel Hanson said: “Creditors are now going to get a court or the control board to come together and force the Puerto Rican government into some kind of austerity plan,”

Many Puerto Ricans worry that the oversight board would place investor concerns above those of islanders. There is even a provision that might lower the minimum wage for some young workers and also weaken overtime pay rules. However, some Republicans complain that the bill is in effect a bailout for the island. Those who voted no on the procedural vote were made up of 18 Republicans, 13 Democrats, and Independent Bernie Sanders.

Senate Majority Leader Mitch McConnell a Republican claimed that the bill avoided a tax-payer funded bailout of the territory and a humanitarian disaster for the Puerto Rican people. Democratic leader, Harry Reid backed the bill while claiming to share the concerns of some Democratic opponents saying: "I take issue with the oversight board, their excessive powers and appointment structure, but he supported the bill anyway: "Otherwise we..turn them over to the hedge funds and they will sue them to death." The bill is called the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA).

Two key supporters of the bill lobbied to convince skeptics to support it. Treasury Secretary Jack Lew said that if it had been written by one person alone it would have been different but that the bill was a compromise that would prevent Puerto Rico from descending into chaos and creating a terrible ordeal for the 3.5 million islanders. Puerto Rican Governor Garcia Padilla also said that while the bill was "imperfect" it provided for orderly debt restructuring and the possibility of negotiations with creditors.

Puerto Rico has been suffering not only with a huge debt but the economy is stagnant as the population moves to the mainland eroding the tax base for providing essential services. Almost a third of government revenues are now spent simply on servicing the debt.

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.

Puerto Rico rings in New Year by defaulting on debt

Puerto Rico Governor Alejandro Padilla said the island will not make a $35.9 million payment to its Infrastructure Finance Authority nor another $1.4 million payment to its Public Finance Corp.

This is just a small fraction of the $1 billion in debt that is due on Monday. The government already defaulted on payments to its Public Finance Corporation back in August. Paying off general obligation debt is a priority and on January 4th the government will be required to make a payment of $328.7 million. In total, Puerto Rico has $70 billion in total debt it claims it cannot pay. The government would like to declare bankruptcy. It cannot do this without the support of U.S. Congress. Hedge funds and other creditors are lobbying hard to see that this does not happen.

The government, as in Greece, has been forced to implement many austerity measures to finance its upcoming payments. It has already taken $163 million from other agencies including the highway, convention center and busing authorities. There are also rumours that the government will borrow money from the public employee pension funds. The government is also saving money by delaying the release of income tax refunds.

Government austerity measures to meet payments, include the laying off of 30,000 public sector workers. The sales tax was a hefty 7 percent but now has been upped to 11.5 percent. One third of revenues are now used solely to pay down debt. Since 2006 the economy has actually shrunk by 10 percent and the poverty rate is now a staggering 45 percent. Since Puerto Ricans are US citizens many are simply moving away to the continental U.S. as indicated on the appended video.

Unlike a U.S. city, such as Detroit, Puerto Rico cannot just declare bankruptcy and restructure its debt. As a commonwealth it must get approval of the U.S. Congress to restructure its debt. Antonio Weiss of the Treasury Department said that resolving the Puerto Rican debt crisis would require Congressional action.

There are hedge funds that have a huge stake in Puerto Rico's debt situation. Hedge funds bought up their debt:In the last year, as Puerto Rico’s spiraling debt effectively prevented it from borrowing on ordinary credit markets, creditors began selling off Puerto Rican debt, as David Dayen reported in the American Prospect. A select group of big investors, most of them hedge funds, stepped in to buy the debt for a mere fraction of its original value.

These hedge funds are known as “vultures” because of their attempts to squeeze a profit from a penniless debtor’s proverbial carcass. Vultures buy the debt of cash-strapped sovereign nations -- think Greece and Argentina -- at discounted rates from other investors, who have grown scared they will not be paid back.

The hedge funds want to have the Puerto Rican debt paid off at full value even though they bought it at a huge discount. The last thing they want is Puerto Rico to be able to declare bankruptcy. Holders of Puerto Rican bonds paid as little as 30 cents on the dollar for them and the bonds have yields of up to 11 percent. These bonds are tax exempt in all 50 U.S. states. General obligation bonds take top priority when it comes to paying off debt. There are conflicts even within the groups holding debts. Some who holds bonds support those holding debt in public corporations being subject to debt restructuring. This would help the government pay them!

The hedge funds demand large returns because their investments are risky. In 2014 they bought general obligations bonds that no one else would touch. They need to protect this risky investment by political lobbying. Sen.Blumenthal (D-Conn) working with Marco Rubio (R-Fla) tried to have a provision that gave Puerto Rico at least some bankruptcy powers:But a group of hedge funds that includes D.E. Shaw -- a firm headed by top Hillary Clinton donor David Shaw -- played a key role in defeating the bipartisan effort with a multi-front lobbying offensive, as The New York Times reported at length. Blue Mountain, another hedge fund in the group, launched a sophisticated astroturf campaign casting the bill, which would cost taxpayers nothing, as a “bailout” that would harm ordinary seniors whose retirement plans rely on returns from Puerto Rican bonds.Rubio withdrew his support under pressure. Joseph Stiglitz, Nobel Prize-winning economist says of the hedge funds and financiers:“What they are doing, by getting all the resources for themselves, is undermining the viability of Puerto Rico as a commonwealth. They want their money now, and they want to get the rules set so that they can make money for the next 20 years.”

Read more: http://www.digitaljournal.com/business/business/op-ed-puerto-rico-to-begin-2016-by-defaulting-on-debt/article/453732#ixzz3wPbQLXJ9