[News] Speculators Circling Puerto Rico Latest Mode of Colonialism

Anti-Imperialist News news at freedomarchives.org
Fri Jul 31 12:07:16 EDT 2015


  Speculators Circling Puerto Rico Latest Mode of Colonialism

by Pete Dolack <http://www.counterpunch.org/author/pete-dolack/>
July 321, 2015

Puerto Rico’s governor may have said the commonwealth’s debt is 
but that doesn’t mean Puerto Ricans aren’t going to pay for it. Vulture 
capitalists are circling the island, ready to extract still more wealth 
from the impoverished island.

You already know the drill: Capital is sucked out by corporate interests 
that pay little in taxes, budget deficits grow and speculators swoop in 
to take advantage, leaving working people holding the bag. Already, the 
Puerto Rican government is considering imposing an 11 percent cut 
to Medicare and Medicaid for 2016 and more than 600 schools may be 
in the next five years on top of the 150 already closed by budget cuts.

To ensure more austerity, a group of hedge funds hired three former 
International Monetary Fund economists to issue a report on what Puerto 
Rico should do. And — surprise! — the report, released this week, says 
to lay off teachers, cut education spending and sell public assets to 
provide money for hedge funds.

The crisis has already been profitable for Wall Street as banks and law 
firms racked up $1.4 billion in fees 
<http://www.wsj.com/articles/SB10001424052702303672404579151703348313062> from 
86 bond deals that raised $62 billion for the island between 2006 and 
2013 alone. Because of downgrades in Puerto Rico’s credit rating, Wall 
Street can demand hundreds of millions more 
in lending fees, credit-default-swap termination fees and higher 
interest rates.

What has a century of colonialism — a century of domination by U.S. 
corporations — wrought? An activist with the island’s Party of the 
Working People, Rafael Bernabe, puts it in stark terms 

    “Puerto Rico’s economy has not grown since 2006. During that period,
    total employment has fallen by 20 percent or 250,000 jobs. Since
    1996 manufacturing employment in particular has fallen by half (from
    close to 160,000 to less than 80,000). The labor force participation
    rate has dipped under 40 percent. Through firings and attrition,
    since 2007 public employment has fallen by 20 percent or 50,000
    jobs. Migration has accelerated to levels unseen since the 1950s. …

    Not only does mass unemployment result in significant migration, it
    also depresses wages, which consequently deepens economic inequality
    and insures high levels of poverty. This helps explain the
    persistence of the wide gap in living standards between Puerto Rico
    and the U.S. mainland. Contrary to neoliberal dogma, after more than
    a century of a colonial experiment in free trade, free mobility of
    capital, and even the free movement of people between Puerto Rico
    and the United States, Puerto Rico’s per capita income is a third of
    the U.S. figure.”

Although the neoliberal clamp has recently tightened on the island, its 
current subaltern position is many years in the making.

*A century of colonialism and the repression that goes with it*

Puerto Rico’s tenure as an independent nation lasted exactly eight days 
in 1898, ending when the United States invaded it during the 
Spanish-American War. Quickly taking control of the island’s economy, 
the U.S. response to a hurricane that wiped out the coffee crop in 1899 
was not to send aid but instead impose a 40 percent devaluation on 
Puerto Rico’s monetary holdings. (The source for this and the following 
two paragraphs is the “historical overview” page of Nelson Denis’ /War 
Against All Puerto Ricans 
<http://waragainstallpuertoricans.com/historical-overview/>/ web site, 
an excellent trove of information.) The devaluation forced Puerto Rican 
farmers to borrow money from U.S. banks and within a decade, thanks to 
usurious interest rates, farmers defaulted on their loans, giving the 
banks possession of their land.

One of those banks was the Riggs National Bank, and a member of the 
family that owned the banks, E. Francis Riggs, became Puerto Rico’s 
chief of police. By 1931, Mr. Denis reports, 41 sugar syndicates, 80 
percent of which were owned by U.S. corporations, owned essentially all 
of the island’s farmland. Just four of them controlled half the island’s 
arable land. When the island’s legislature enacted a minimum-wage law, 
the U.S. Supreme Court declared it illegal. An island-wide agricultural 
strike in 1934 was answered by Police Chief Riggs, the member of the 
banking family, with this response: “There will be war to the death 
against all Puerto Ricans.” The following years saw a series of 
massacres, and mass arrests and torture of independence activists, and a 
1948 law criminalized advocacy of independence, with penalties of 10 
years in jail and massive fines. Even owning a Puerto Rican flag was 
made illegal.

In 1976, the tax code was amended so that U.S. companies operating on 
the island would pay no corporate taxes. For the next 30 years, until 
2006, U.S. pharmaceutical companies took advantage of this tax loophole 
to generate massive profits. Mr. Denis reports that in 2002 the combined 
profits for the ten drug companies in the /Fortune/ 500 ($35.9 billion) 
were more than the profits for all the other 490 businesses combined 
($33.7 billion).

An independent Puerto Rico could not be exploited to such a degree, so 
repression was particularly aimed at anybody with independence 
sympathies but especially leaders of the Nationalist Party. In a 
/Democracy Now!/ commentary 
in 2010 on the 60th anniversary of the Jayuya independence uprising, 
Juan Gonzalez said:

    “Between a thousand, two thousand people were arrested. Anybody who
    had any kind of political leanings toward independence or was seen
    as a leader was thrown into jail. And for years afterwards, it was
    impossible for supporters of independence to get jobs in the
    government. It really was an enormous repression and crackdown that
    occurred in the years following.”

One legacy of these decades of repression is the electoral silencing of 
independence advocates. Voting on the island tends to split evenly 
between the parties of statehood and continued commonwealth status. Mr. 
Bernabe wrote:

    “The vote for the Partido Independentista Puertorriqueño (the Puerto
    Rican Independence Party or PIP) was less than 3 percent in the 2008
    and 2012 elections. Independentistas, of course, have a far more
    significant presence and often play a leading role in labor,
    environmental, student, and other struggles. Many vote for the
    [pro-commonwealth Popular Democratic Party] in accordance with the
    same ‘lesser-evil’ logic that leads many U.S. progressives into the
    orbit of the Democratic Party.”

*Education, health care cuts so hedge funds get paid*

Having profited on the backs of Puerto Ricans, can Wall Street really be 
the solution to the island’s massive $73 billion debt? Common sense says 
no, but the island’s political leaders believe otherwise. Lest there be 
any lingering doubt about what the vulture capitalists circling their 
next target have in mind, a group of them issued a report this week, 
“For Puerto Rico, There is a Better Way 
that complains Puerto Rico spends too much money on education, even 
though the island spends about 80 percent of the U.S. average on a 
per-student basis.

The report’s three authors each had long careers with the International 
Monetary Fund, and they have not strayed from the IMF’s usual “one size 
fits all” austerity model. Although there are a couple of reasonable 
suggestions in the report — most notably, increasing the island’s low 
tax-compliance rate — it calls for much sacrifice by working people and 
none by hedge-fund billionaires. Among other recommendations, it calls 
for an increase in the sales tax, a flat income tax (always a benefit 
for the richest), cuts to education and Medicaid, and loosening labor 
laws that protect pay and vacation.

Hedge funds that own a significant part of the island’s debt have had a 
series of meetings with officials. But just who these hedge funds are 
can be difficult to ascertain. Puerto Rico’s Center for Investigative 
Journalism reports it received “runarounds and silence” from several 
government officials when it requested a list of those who hold the debt 
and what conditions bondholders are seeking. But the Center has been 
able to put together what it calls “the most complete list of the 
that are getting ready to renegotiate or demand complete payment of the 

Several of the hedge funds seeking payment have also held bonds issued 
by Argentina, Greece and the city of Detroit. Three of them — Aurelius 
Capital Management, Monarch Alternative Capital and Canyon Capital — 
have held bonds for all three plus Puerto Rico.

Aurelius is a notorious speculator that joined with vulture-capitalist 
Paul Singer to demand Argentina pay full face value 
on bonds bought at tiny fractions of that price. Aurelius is seeking a 
1,600 percent profit on its Argentine bonds, regardless of the cost to 
others. The principal of Aurelius, Mark Brodsky, was previously involved 
in squeezing the Republic of Congo-Brazzaville 
an episode in which $400 million was demanded on bonds 
bought for less than $10 million from a country where children die from 

Another on the list is John Paulson, who has been busy buying up luxury 
including spending $260 million to buy three resorts. Another 
billionaire, Nicholas Prouty, has invested more than $550 million so 
that San Juan’s marina can accommodate yachts larger than 200 feet.

*Power-company ratepayers expected to pay for profits, too*

In line with those speculators, a group of hedge funds that own Puerto 
Rico Power Authority bonds (a debt separate from the general-obligation 
government bonds discussed above) propose a plan 
that would pay bondholders 33 percent less than face value. That sounds 
like an offer to accept a “haircut,” to use the financial term, but 
those bonds are currently trading at about half of face value, so the 
hedge funders would be guaranteeing themselves a profit. The plan would 
also impose a surcharge on the power authority’s customers, so they 
would be paying more for electricity to guarantee hedge-fund profits.

Whether buying bonds or real estate, it is profits hedge-fund 
billionaires are after. Puerto Rican bonds are tax-exempt, one reason 
for their popularity. Extracting wealth from the island is not new, 
however. Mr. Bernabe of the Party of Working People, in his commentary, 
noted the imbalance between profits and what’s available for the common 

    “[T]wo dozen U.S. corporations extract around $35 billion a year in
    profits from or through their operations in Puerto Rico. Bear in
    mind that the total income of the government of Puerto Rico is
    around $9 billion. U.S. corporations benefit from the tax-exemption
    measures that have been the centerpiece of the government’s
    development policy since 1947.”

Puerto Rico is due to make $5.15 billion in debt payments 
in its 2016 fiscal year, which began on July 1, a total that represents 
more than half of its $9.8 billion budget. Given the previous 
experiences of Argentina 
and Detroit 
the future does not look rosy for the working people of Puerto Rico.

It is not difficult to notice that, although it is always time for us to 
cut back, it is never time for financiers to cut back. The financial 
industry, in contrast to the mythology it loves to peddle, does not 
create wealth — it confiscates wealth, attempting to profit off every 
aspect of human activity. Attention is now focused on hedge funds’ 
manipulation of debt, and although that is a necessary focus, these 
circling vultures represent only the latest manifestation of a long 
history of colonialism.

/*Pete Dolack* writes the Systemic Disorder 
<http://systemicdisorder.wordpress.com/> blog. He has been an activist 
with several groups/.

Freedom Archives 522 Valencia Street San Francisco, CA 94110 415 
863.9977 www.freedomarchives.org
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