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Op-Ed: Congress v. P.R.: Modern day struggle for equality

Author Raúl A. Palacios is president of nonprofit organization ALPFA PR, which focuses on Latino business leadership development

Author Raúl A. Palacios is president of nonprofit organization ALPFA PR, which focuses on Latino business leadership development

It’s ironic that on the heels of the celebration of America’s greatest achievement, the month when the land of the free and the home of the brave was forever liberated from the shackles of its colonial status, we now find one of its remaining illegitimate sons, Puerto Rico, on the cusp of a similar crossroads.

In an interview with the New York Times, the governor of Puerto Rico, Alejandro García-Padilla shocked the world by announcing that Puerto Rico could no longer pay its debts. A bold proclamation, given that for the first time, the governor admitted what was widely perceived as inevitable.

As expected, chaos ensued. The market dropped our local bank stocks around 10 percent to 15 percent, credit ratings agencies downgraded our credit rating once again, and the global media quickly compared the similarities between our financial crisis to Greece’s own meltdown, both spearheaded by poor fiscal administration by public leaders.

So how did we get here?
Historically, Puerto Rico had been able to access the capital markets via the municipal bond markets. Armed with a unique territorial status, being a U.S. territory, not a state, Puerto Rico Municipal bonds are triple tax-free, meaning that interest collected from these bonds are exempt from municipal, state and federal taxation. Mutual funds, pension plans, family offices and individual investors flocked to get piece of the action, evidenced by the fact that 70 percent of municipal bonds mutual funds held Puerto Rico bonds as of Feb. 6, 2014, according to Morningstar.

Business was booming!

Capital derived from these attractive bond sales were supposed to be re-invested in economic development activities, improving infrastructure and enhancing education. Instead, for nearly three decades, our public leaders used this capital to finance operational budget deficits to meet current obligations. This created a vicious cycle, where our government kept undertaking new debt to pay off the old obligations, until finally accumulating the now monstrous $72 billion in public debt.

Who’s to blame?
It’s easy to point straight at our public leaders for this mess. However, if during the 2008 housing crisis, Congress reprimanded big banks for their passive lending requirements and even enacted stricter regulation on capital requirements via the Dodd-Frank Act, then the same could be said of ambitious creditors that simply wanted to collect high yields while evading federal taxation.

You could also point to the greedy financial advisers, brokerage firms and hedge funds, which willingly duped unsuspecting investors into doubling down on Puerto Rico bonds, while understanding full well that Puerto Rico’s economic outlook was bleak at best.

Don’t get me wrong, a WHOLE LOT OF BLAME should be placed squarely on the shoulders of our past public leaders, who year after year kept borrowing irresponsibly to spend millions of dollars in an inefficient government structure. But to put it simply; if you keep lending money to a government that consistently missed on revenue projections without adjusting their high cost budget, while it operated in a shrinking economy that relied on a decreasing base tax base where only 39 percent to 40 percent of the population worked, then what exactly are you banking on?

Was it simply that constitutionally Puerto Rico couldn’t go bankrupt?

Where do we go from here?
Recently, as part of the launch of the ALPFA (Association of Latino Professionals for America) Law Series, we organized a panel discussion centered on Resident Commissioner Pedro Pierluisi’s project HR 870, which is seeking that Puerto Rico’s insolvent public corporation’s have access to Chapter 9 bankruptcy protection, which is available exclusively for municipalities. This due to the fact that Puerto Rico was inexplicably excluded in 1984 by no logical or constitutional argument other than because we’re not a state.

This bill, which had already received bi-partisan support in Puerto Rico, something that rarely happens, would help ensure a fair and due process for debt negotiation between Puerto Rico’s public corporations and its creditors. The same tools that were pivotal to Detroit’s economic recovery as explained by bankruptcy law expert and event panelist, Jaime Vilariño.

However, Pierluisi then admitted during the Q&A, what was made public last week, that strong opposition from the Republican Party was both real and powerful. These conservatives, which currently control both the House and Senate, have effectively blocked the bill from even going to a vote in the House.

The lack of support has been completely disappointing, when you consider that it’s no secret that hired Wall Street lobbyists have heavily influenced the opposition. Sponsored in some cases by the same Bondholders that are actively sitting across the negotiating table with the most insolvent public corporation, the Puerto Rico Electric Public Authority (PREPA).

The frustration is even greater when serious contenders for the U.S. presidency, like Democratic favorites Hilary Clinton and Bernie Sanders, as well as GOP favorite, Jeb Bush, have been vocal in their support for the legislation. Unfortunately, I can’t help but get discouraged with Congress when I see politicians favoring Donald Trump’s campaign despite his hateful stance on Mexican immigrants or when I read in the papers that Senator Mike Huckabe is lobbying for a hands-off approach, going as far as stating “This Country is done giving out bailouts!”

Since when is having equal rights equal to a bailout? 
Maybe for him, it’s convenient to forget that Puerto Ricans were granted U.S. citizenship in 1917. Or maybe he’s not aware that we’ve fought in every American War since becoming U.S. property as a victory prize during the Spanish-American war of 1898. Or maybe he simply doesn’t care that from 2003 to 2009, we’ve suffered more casualties than 25 other states.

Why is it that North American politicians are always hell-bent on protecting human rights and the values of democracy in other countries, but yet, deny their own citizens, who battle valiantly to defend democracy, the right to choose their very own Commander in Chief?

What kind of Democracy is this?

To be clear, we aren’t asking for a bailout. In the words of Hilary Clinton, all we’re asking for is “a fair shot to succeed.”

For more than 100 years, we’ve been living in a status limbo, which allows us to be U.S. citizens that can’t vote for the president. Nor can we influence legislation since we don’t hold a vote Congress. This, while having to contribute financially, the same amount of Social Security and Medicare as the rest of the voting U.S. citizens, yet receive the least amount of federal reimbursement compared to the rest of the states. In fact, this year alone it was announced that the federal government planned to slash 3 percent of federal reimbursements for Puerto Rico, while increasing funding for the rest of the states of the Union.

Whose agenda is been favored? Not ours!

In addition, even though we aren’t treated equally, we still have to abide by the same federal rules that don’t even consider our economic well-being. Since 1920, Puerto Rico hasn’t been allowed to develop its own shipping industry thanks to the Marine Merchant Act, also known as the Jones Act.

These “Cabotage laws” require that all shipping between U.S. ports be performed by an aging, overpriced fleet of U.S.-flagged ships. The Government Accountability Office reported in 2013 that just 17 vessels belonging to four companies connect Puerto Rico’s 3.5 million inhabitants to the mainland U.S.

With government prohibiting free-market competition among shippers, these four firms can charge higher prices for freight to and from the island. The result: higher consumer prices for islanders. The shipping restriction also puts Puerto Rican products at a cost disadvantage in mainland markets.

Despite the fact that world renowned Economist’s Anne Krueger’s recently published report on the Puerto Rico fiscal crisis listed the Jones Act as one of the main foreign policies that negatively impacts our economy by making all import costs at least twice as high as in neighboring islands, the Act is unlikely exempt the island anytime soon. This due to the fact that the U.S. Shipping industry benefits greatly from the high volume of imports, estimated at around $62 billion a year, per the report.

Could all this resistance from Congress to change foreign policies that directly hinder Puerto Rico’s ability to navigate its crisis be a preview of Congress’s silent stance on the Commonwealth’s chances of becoming the 51st state?

How come for some cases, we are JUST a U.S. territory and therefore, are denied access the same benefits as other states, like Chapter 9 protection, yet when it comes to making sacrifices — like sending our soldiers to wars, continuing to finance a broken Social Security system or having to support the highly inefficient U.S. merchant industry — we are as American as apple pie?

Something has to give, but what can we do?
Let the record show that 52 percent of the Puerto Rican population has already rejected the current colonial status during a 2012 referendum. No matter if it’s as a sovereign nation or as a state, the fact is that the majority has clearly demanded a change from the existing rules of the game.

Nobody knows when that change will come. But what is certain is that it will not come easily. If past history is any indicator, the struggle for equal rights in America has rarely been resolved immediately. Women have been voting for less than a century. Martin Luther King’s iconic “I have a Dream” speech, which vouched for equal rights and legislation against discrimination, is barely 52 years old. Gay marriage wasn’t even legal until last month.

Point is that these monumental changes took years of struggle, in which visionary leaders remained patient and fought to influence societies to do the right thing. Whether you root for statehood or sovereignty, to reach a final consensus on this never-ending debate, pressure has to come from us, the people.

We can’t just wait for politicians to decide our future. From the approximately 6 million Puerto Rican living stateside, along with the 3.6 million living on the island, we have to unite under the same common goal: Push for a federally binding referendum within THIS decade to free Puerto Rico from the chains of modern day colonialism.

Whether through public demonstrations, peaceful protest, or simply spreading ideas through columns or blogs, we have to challenge politicians into doing what’s right. Now is the time to let our voices be heard.

Because in the fight for equality or political freedom, victory is never given.

It’s taken.

Author Details
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This story was written by our staff based on a press release.

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1 Comment

  1. DavidRMartinR July 20, 2015

    Congress’ refusal to grant PR status as a state for purposes of Chap 9 of the Bankruptcy Code should be a clear signal about the remote feasibility of obtaining full statehood.

    Separately, it’s difficult to square the desire for equal treatment if PR seeks an exemption from the Jones Act, which applies to all states of the U.S., The Jones Act has also been exaggerated as the cause of high consumer prices in PR. The U.S. Virgin Islands are exempt from the Jones Act, but consumer prices there are substantially higher than in PR.

    The statehood issue has been largely a distractor in the debt crisis debate. Nothing about PR’s “colonial status” prevents it from charging and collecting adequate taxes to pay for government operations and its other financing needs. The 4% excise tax on multinationals was an important step forward but did not go far enough. The manufacturing sector cut more jobs before the 4% tax was imposed and increased exports after starting to pay the tax.

    PR taxes a mere 9-10% of GDP, less than most “very poor” countries, according to last week’s Economist. It should be no surprise that the island is broke when it lets about 50% of the economy escape taxation through grants of tax exemption and absurdly low levels of tax on real property, cars, dividends and capital gains.

    The solutions to this crisis are mostly in our hands. Increase taxes on high-income and high-asset enterprises and people, Eliminate bureaucracy (including the strangling reporting requirements of the IVU/IVA), repeal punitive labor laws, and stop wasting time on the status debate unless there’s a realistic chance that Congress will act on it.


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