Puerto Rico, the Greece of the Caribbean [eng]

by José Hernández 

I. A Perfect Storm 

On 20 September 2017 hurricane María made its landfall in the south-eastern coast of Puerto Rico after devastating the Lesser Antilles. It was ranked as a category 4 hurricane and it promised to pose a challenge to the island. Indeed, it turned out to be the second strongest hurricane to hit the island in recorded history. It created unimaginable natural and material destruction: trees were uprooted, cars were turned upside down, thousands of houses were destroyed, beaches were reshaped by erosion, statues fell to the ground, and electric power system collapsed in its entirety. Material loss was estimated at $85 billion dollars. But María will be remembered for a more interesting fact: it accelerated the collapse of the colonial government in Puerto Rico.

While visiting Puerto Rico on March 2018 - exactly six months after the hurricane hit the island - I witnessed the immensity of the devastation: dead trees and debris remained scattered on the ground in cities and countryside alike. The island-nation that bragged about its modernism and leadership in the Caribbean Sea was sent back to the 1950s when its industrialization began. Brutal changes in topography were still evident because six months after the event, trees were still struggling to gain back their otherwise rich tropical foliage. Scientific studies estimate a staggering number of 31 million trees affected by the hurricane.

If nature took a serious hit, infrastructure took an even bigger one. Everyday life as known in 2017 was no longer the same. A transaction as simple as paying for a meal with a credit card was no longer possible in some restaurants. The digital infrastructure needed to process this kind of transactions was available but “the system” running it was either fried by recurrent surges or too unstable to operate. On top of it, electricity otherwise widespread was available in major towns but non-existent in big areas of the countryside.

In the aftermath of the event, the Puerto Rican government was incapable of managing the emergency because telecommunications infrastructure was down, coastal cities were flooded, rivers were running out of control, mudslides were threatening to destroy communities in rural areas, and the bridges were shattered to pieces by powerful floods. On a tiny island of 9.104 km2, communities were isolated. It took several hours for the government to organize a visual assessment in a helicopter. Hurricane María triggered a chaos that revealed the fragility of Puerto Rican colonial government.

The colonial power in the United States did not do any better: it took a couple of days before the American government offered concrete help.

II. Shockwaves

Common wisdom tells that the worst part of a hurricane is the aftermath: diseases, destruction and chaos ensue. Despite the unprecedented destruction, the government claimed only 16 deaths related to the hurricane, then raised  it to 34. This may seem like a small number as stated by President Donald Trump during his visit to the island. But these numbers do not reflect  the over one thousand corpses cremated to avoid a total collapse of the morgues in the weeks following the hurricane. In a very recent study published by Harvard University, the real death toll is raised to 4.564 dead people. The difference between the official numbers and the ones shown by Harvard University lies in the fact that Puerto Rican government refuses to count all losses resulting from lack of access to health services. In fact, real numbers might be higher because neither the government nor Harvard University’s study reflect a 29% increase in suicides since the hurricane hit the island and an unprecedented record of more than 135.000 people leaving the island in the six months following the hurricane.

Hurricane Maria precipitated the collapse of the colonial government, but that collapse was well underway before it started to form in the increasingly warming waters of the northern Atlantic. The roots of present day chaos relate to the massive debt. How big is that debt? It could be somewhere between $ or $120.000.000 because at this point the Puerto Rican government does not know how much it owes. The only known fact is that Puerto Rico can’t afford to repay. How did Puerto Rico get there?

IV. Making of an Astronomical Debt

When the American government took over the local economy in 1898, it ceded huge land estates to absentist American corporations. Three decades later, in the 1930’s, American sugar cane and coffee companies established in the island were thriving while Puerto Ricans were drowning in poverty: the Puerto Rican bourgeoisie was ruined and workers were doomed to miserable times that triggered the first wave of emigration to the United States. Two more decades of poverty led to the rise of Puerto Rican Nationalist Party and it’s armed struggle against the United States. As Puerto Rico was being reduced to poverty, ruin, and armed conflict, the Cuban Revolution was on its way to victory and about to force a redefinition of the relationship between the United States States and Latin America, including Puerto Rico.

Feeling threatened by the emergence of a socialist government in the Caribbean, the American government wanted to avoid at all cost a “contagion” in the region and more specifically in its still geo-strategically important colony. Americans injected the fragile Puerto Rican economy with massive flows of money while negotiating a counter-logical new political status of “Freely Associated State” (or more simply “Commonwealth”). By providing money and redefining the political relationship, the US tried to reverse the rise of the Puerto Rican Nationalist Party while avoiding the oversight of the UN decolonization committee.

To eradicate widespread poverty, the United States applied to Puerto Rico section 936 of its tax code. In doing so, it gave huge tax incentives to US companies provided that they based part of their operations in Puerto Rico.

With the newly applied economic and political system, Puerto Rican society transitioned from an agrarian to an industrial model. American companies employed Puerto Ricans and boosted the economy while getting cheap labor and juicy tax exemptions. Puerto Rico evolved very quickly from an agrarian model to an industrial one controlled by needle factories first, then by pharmaceutical companies. Meanwhile, Puerto Rican Nationalist Party and all pro-independence organizations were closely surveilled, harassed and criminalized by both the USA (i.e. McCarthyism) and the Puerto Rican government (i.e. Gag Law). This triple strategy (i.e. flow of money, new political status, silent persecution of the left) created the conditions for creation of wealth, pacification of the island, and an increasing dependence on the American power. 

V. A New World Order

At the beginning of the 1990’s, the USSR collapsed and Cuba lost an important ally. It had an immediate impact on the shift of power in the world and Puerto Rico lost its geo-strategic value. The United States and Puerto Rico engaged in a series of failed negotiations to redefine their relationship. A couple of referenda were organized during the late 80’s and early 90’s by the colonial governments but no political negotiations followed in the USA.

In his quest for the “Holy Grail” of statehood, a young surgeon ran for governor and won the elections in 1992. Pedro Rosselló was committed to obtaining statehood for Puerto Rico and made rushed decisions about the Puerto Rican economy which would turn out to be catastrophic. He started by demanding the end of section 936 as he believed it was an obstacle to statehood. Then, he applied the ultra-liberal credo of the times: during his two terms in power, he privatized assets that provided some benefit to the Puerto Rican government and ensured employment to Puerto Ricans. By doing so, he triggered workers strikes that turned violent. Despite the protests, many privatizations took place:

  • Caribe Hilton Hotel                                         
  • Puerto Rico Telephone Company
  • Lotus Pineapple Processing Plant
  • Puerto Rico Cargo Ships
  • Sugar Corporation of Puerto Rico
  • Puerto Rico Aqueduct and Sewer Authority

A more nuanced comment is required for the sale of 7 regional hospitals and 78 diagnostic clinics. Although the sale in itself is questionable because it initiated the dismantlement of the national healthcare system, we must admit that the revenue was used to create a universal health insurance system known as the “health reform”. Later on, it would prove to be unsustainable and an important factor for the spike of the debt.

Alongside these series of sales, the governor would embark in the construction of facilities that would support Puerto Rico’s candidacy to 2004 Olympic Games. Huge investments financed through loans included:

  • Puerto Rico Stadium (later called José M. Agrelot Stadium)
  • Puerto Rico Convention Center (later called - very ironically - Pedró Rosselló Convention Center)
  • Line 1 of the subway

Needless to say, Puerto Rico’s candidacy for the Olympic games did not prevail and the expected profit never saw the light.

VI. Loans and the Annual Budget

The end of section 936 was bad for Puerto Rico because without the profitable tax exemptions, factories and pharmaceutical companies saw no reason to stay.  Unemployment  started to rise and poverty and misery came back. Governors from center and right-wing parties continued to make loans in the market as Puerto Rican bonds were still highly desirable due to their triple exemption in the USA market (i.e. municipal, state, and federal exemptions). Borrowing became the new way to balance the annual budgets. Without the constant investment of foreign companies, the national economy started to slow down then stagnate. Eventually, Puerto Rico fell in a recession. To make matters worse, in 2009 another pro-statehood governor also seduced by the credo of liberal economy won the elections. Soon thereafter, Luis Fortuño fired 37,000 government employees. This created a contraction shockwave in Puerto Rican economy. Since these measures were taken, the economy never recovered. Combined with 16 billion dollars in loans in just four years, Fortuño’s government contributed more than any other government to the colossal debt accumulated in the past 20 years.

Puerto Ricans certainly carry the burden of paying for this astronomical debt. However, the colonial status led inevitably to this outcome. In fact, the Jones Act of 1920 has been a major factor in Puerto Rico’s impoverishment and indebtment.

VII. The Jones Act of 1920

The Jones Act of 1920 was approved as a consequence of the rise of German naval warfare industry, specifically the U-Boats efficiently used in commercial raiding to enforce a naval blockade against Canadian and American ships bringing supplies to the United Kingdom during the Great War. It was conceived for security reasons but also as part of a protectionist agenda. The Jones Act states that all goods transported by water between American ports must be carried in a ship constructed in the USA, owned by American citizens, crewed by American citizens or permanent residents, and therefore it must carry the U.S. flag. Puerto Rico, as a colonial possession, is subject to the Jones Act. In other words, with this law, the American legislators made sure that the Puerto Rican market would be exclusively reserved for American investors. The Jones Act legalized a monopoly that has served right the American economy while it has hurt that of Puerto Rican. With Nelson A. Denis, we stress that:

            Under the law, any foreign registry vessel that enters Puerto Rico must

pay punitive tariffs, fees and taxes, which are passed on to the Puerto Rican consumer.

Denis goes on to state that the Jones Act has increased the cost of living in Puerto Rico by 13% in comparison to 325 urban areas elsewhere in the United States.

Center and right-wing Puerto Rican governments have sought an exemption to this law for years without any success. Due to recurrent pleads, the General Accounting Office (GAO) examined the subject in 2013 and determined that:

because of cost advantages, unrestricted competition from foreign-flag vessels could result in the disappearance of most U.S.-flag vessels in this trade, having a negative impact on the U.S. merchant marine and the shipyard industrial base that the Act was meant to protect.

As the report states, the survival of U.S. merchant marine lies on Puerto Ricans’ shoulders. Interestingly, and to further justify the reasons why they did not deem necessary to modify this law, the reports states that:

Most of the cargoes shipped between the United States and Puerto Rico is carried by four Jones Act carriers that provide dedicated, scheduled weekly service using containerships and container barges.

However, this situation benefits mostly the USA. As Michael Hansen states:

Beginning in 2008 six mid-level shipping executives with direct responsibilities in the domestic Puerto Rico trade have been sentenced to federal prison for violating the Sherman Antitrust Act by conspiring to fix ocean freight rates and allocate cargoes amongst the three shipping lines which employed them.

Despite the Federal Government refusal to repeal this law, many leading institutions and think tanks such as Heritage Foundation, Cato Institute, and Manhattan Institute have lobbied against it. In a recent article titled The Jones Act has been hurting Puerto Rico for decades HYPERLINK "http://money.cnn.com/2017/09/28/news/economy/jones-act-puerto-rico/index.html", Chris Isidore analyzes a New York Federal Bank study from 2012 where the cost of shipping a container of goods to Puerto Rico is compared to the cost of shipping a container in a foreign vessel to neighboring Dominican Republic:

                                                        Puerto Rico                 Dominican Republic

Jones Cargo Ship                               $3,063.00                                ----

Foreign Cargo Ship                                 ----                                $1,504.00

Based on these numbers and this type of analysis, many left-wing organizations in Puerto Rico have been fighting the discourse of economic dependence and putting the focus on colonial exploitation. But, years of insidious economic colonization have had a huge impact on the colonized mentality of Puerto Rican society.

VIII. Back to Square One

When the Puerto Rican government defaulted on his payment to the “vulture funds”, it created a shockwave in American-Puerto Rican politics. In an attempt to pacify the investors who immediately threatened to sue the Puerto Rican government, President Barack Obama created an oversight board that was placed directly above the Puerto Rican government. Ironically, the board was named “PROMESA” (i.e. “PROMISE”) which stands for Puerto Rico Oversight, Management, and Economic Stability Act. Puerto Ricans named it simply “la Junta”.

To bring Puerto Rico back into the rails, “La Junta” has recommended austerity measures including massive cuts to pensions, privatization of the Puerto Rican Electric Power company, changes in the public university system (i.e. drastic increase in tuition, shutting down of community colleges), approval of a labor law to decrease salaries and cut down benefits (i.e. limiting vacation days from 18 to 7) and eliminating the requirement to justify the reasons to fire an employee as well as privatizing prisons by sending Puerto Rican prisoners to American prisons.

The unfolding of this first confrontation between American and Puerto Rican interests is hard to predict. However, for the second time in history, Puerto Ricans massively demonstrated on May 1st. Organizations from the whole political spectrum committed to “not buy anything”, “not working”, “not paying any fines” that day, and asked citizens to “stay home if they decided not to demonstrate”. May 1st was a big success despite warnings from the government about possible violence. Despite the usual passivity and fear of government, there is hope that a change in mentalities will soon take place. Surprisingly, it seems that austerity measures might be shaping a more combative Puerto Rico.