Just what does the United States owe Puerto Rico?
It’s a question that has come up over the years since Puerto Rico was acquired from Spain in 1898 after the Spanish American War, and it is arising with increased frequency since Governor Garcia Padilla announced in June that Puerto Rico’s debts are “not payable.”
Joseph E. Stiglitz, a nobel laureate in economics, and Mark Medish, a former senior Department of Treasury official, have attempted to answer this question in an opinion piece published in the Wall Street Journal today.
The authors begin by noting that German Finance Minister Wolfgang Schäuble recently mentioned to his American counterpart, Treasury Secretary Jack Lew, that he would gladly trade Greece for Puerto Rico. It is clear from the beginning that Puerto Rico has captured the world’s attention.
Stiglitz and Medish distinguish Puerto Rico from Greece, noting that Greece chose to join the eurozone while Puerto Rico never chose to become an unincorporated U.S. territory. They then describe Puerto Rico’s relationship with the United States since becoming a U.S. possession:
“Washington has since been content to play absentee landlord. The commonwealth of Puerto Rico is neither fish nor fowl in the constitutional order. It lacks both the privileges of a U.S. state and the powers of a sovereign. Indeed, its relationship to the U.S. gives the lie to the notion of a ‘commonwealth.’ The U.S. wants the benefits of an offshore tax haven without the responsibilities to rescue it in time of need.”
Noting that “Washington treats Puerto Ricans as second-class citizens,” the authors list examples of slights of the U.S. government towards its most populous territory – a list they characterize as “long and depressing” – such as reduced Medicare and Medicaid coverage and corporate tax holidays that are “granted and capriciously withdrawn by Congress.”
Stiglitz and Medish recognize that some of of Puerto Rico’s private creditors claim that Puerto Rico merely has a serious short-term liquidity problem but is not insolvent, a situation they describe as “a distinction without a difference.”
“The territory can’t pay its debts today, and with short-term debt financing at the high interest rates demanded by creditors, it will be even less able to pay its debts tomorrow,” the authors conclude.
So, what can be done?
Aside from changing Puerto Rico’s political status, the authors acknowledge that Puerto Rico’s options are limited. Yet they nonetheless maintain that “action by Washington is imperative to prevent further social hardship.” Their list of suggested federal reforms include amending Chapter 9 of the U.S. bankruptcy code to encompass Puerto Rico and provide orderly debt relief. Absent federal action, Puerto Rico should be allowed to promulgate its own bankruptcy law.
Ultimately, the authors conclude, “the U.S. must take responsibility for its imperialist past and neocolonial present. Washington owes Puerto Ricans a future based on democratic legitimacy and a financially and socially viable development strategy—a development strategy that is more than a set of tax breaks for profitable U.S. corporations.”
Read more of the U.S. obligation to Puerto Rico here.