[News] Speculators Circling Puerto Rico Latest Mode of Colonialism
Anti-Imperialist News
news at freedomarchives.org
Fri Jul 31 12:07:16 EDT 2015
*http://www.counterpunch.org/2015/07/31/speculators-circling-puerto-rico-latest-mode-of-colonialism/*
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
unpayable
<http://fsrn.org/2015/06/puerto-ricos-governor-announces-islands-debt-is-unpayable/>,
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
<http://www.theguardian.com/world/2015/jun/28/puerto-rico-debt-unemployment>
to Medicare and Medicaid for 2016 and more than 600 schools may be
closed
<http://panampost.com/panam-staff/2015/05/18/puerto-rico-eyes-mass-school-closures-amid-economic-crisis/>
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
<http://www.theguardian.com/world/2015/jun/28/puerto-rico-debt-unemployment>
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
<https://zcomm.org/znetarticle/puerto-ricos-new-party-of-the-working-people-fights-austerity/>:
“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
<http://www.democracynow.org/2010/10/29/puerto_rico_marks_60th_anniversary_of>
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
<http://www.centennial-group.com/downloads/For%20Puerto%20Rico%20There%20is%20a%20Better%20Way.pdf>,”
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
companies
<http://www.latinorebels.com/2015/07/14/out-in-the-open-hedge-funds-in-puerto-rico/>
that are getting ready to renegotiate or demand complete payment of the
debt.”
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
<https://systemicdisorder.wordpress.com/2014/06/18/financiers-more-sovereign-than-argentina/>
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
<http://hedgeclippers.org/hedgepapers-no-17-hedge-fund-billionaires-in-puerto-rico/>,
an episode in which $400 million was demanded on bonds
<http://www.truth-out.org/news/item/3772:ubervultures-the-billionaires-who-would-pick-our-president>
bought for less than $10 million from a country where children die from
malnutrition.
Another on the list is John Paulson, who has been busy buying up luxury
properties
<http://www.theguardian.com/world/2015/jul/25/puerto-rico-debt-crisis-billionaires-hedge-funds-good-news>,
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
<http://www.bloomberg.com/news/articles/2015-07-24/hedge-funds-to-benefit-most-in-puerto-rico-proposal-sims-says>
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
good:
“[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
<http://www.ibtimes.com/puerto-ricos-debt-addiction-was-fed-banks-passed-risk-bond-buyers-1990649>
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
<https://systemicdisorder.wordpress.com/2012/11/28/in-show-of-power-financiers-impose-will-on-argentinas-navy/>
and Detroit
<https://systemicdisorder.wordpress.com/2013/08/07/wall-street-plunders-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/.
--
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