[News] No More Colonialism Disguised as Financial Assistance: The US Must Relinquish Puerto Rico
Anti-Imperialist News
news at freedomarchives.org
Mon May 23 11:02:53 EDT 2016
http://www.truth-out.org/opinion/item/35274-no-more-colonialism-disguised-as-financial-assistance-the-us-must-relinquish-puerto-rico
No More Colonialism Disguised as Financial Assistance: The US Must
Relinquish Puerto Rico
Nelson A. Denis _ may 19, 2016
This year, 2016, marks a new era in Caribbean colonialism.
The US Congress is preparing a "Financial Control Authority," which will
supervise the finances of the entire government of Puerto Rico -- its
legislature and courts, public authorities, pension system and all
leases, union contracts and collective bargaining agreements. The
authority will also restructure the entire public workforce (including
teachers and police), freeze public pensions and ensure "the payment of
debt obligations." Then it will issue its /own/ debt, spend the funds as
it sees fit and leave Puerto Rico to pay the bill.
Congress can veto any law passed in Puerto Rico.
The authority will also have prosecutorial powers. It will be empowered
to "conduct necessary investigations" into the government of Puerto
Rico, or in other words, be empowered to hold hearings, secure
government records, demand evidence, take testimony, subpoena witnesses
and administer oaths -- under penalty of perjury -- to all witnesses.
Any witness who fails to appear or to supply information will be subject
to criminal prosecution and removal from office. This includes any
elected official on the island: even the governor and attorney general.
All of these powers are enumerated in the 157-page Senate Bill 2381
<https://www.govtrack.us/congress/bills/114/s2381/text>, also known as
the "Puerto Rico Assistance Act of 2015," which is currently under
review in the US Senate.
The bill is supported by banking lobbyists
<http://www.bloomberg.com/politics/articles/2016-02-01/puerto-rico-faces-growing-prospect-of-financial-control-board>
in Washington, DC, since it will ensure the repayment of $72 billion in
public debt and exclude any bankruptcy protections.
It is opposed by many of the island's journalists
<http://www.diariolibre.com/economia/puerto-rico-se-opone-a-que-estados-unidos-imponga-una-junta-de-control-XD2674880>,
union leaders and independence advocates, who view the looming
"authority" as nothing more than a hedge fund collection agency. They
also fear the imposition of a /de facto/ dictatorship in the Caribbean:
created in Washington, operated from Wall Street, all disguised as a
"management assistance authority."
But the problem in Puerto Rico is not its debt, the vulture funds or
even the Financial Control Authority. The problem is that Puerto Rico, a
tiny island in the Caribbean, is staring into the rifle barrel of the
entire US capitalist system.
Sooner or later, there will be an explosion.
*A History of Colonialism*
For 118 years, Puerto Rico has provided a textbook illustration of Naomi
Klein's /The Shock Doctrine: The Rise of Disaster Capitalism/. The
United States "liberated" Puerto Rico from Spain in 1898. The very next
year, in 1899, Hurricane San Ciriaco destroyed thousands of the island's
farms and nearly the entire year's coffee crop. Of 50 million pounds,
only 5 million were saved.
US hurricane relief was bizarre. The US government sent no money
<http://www.latinamericanstudies.org/puertorico/hurricane.pdf>.
<http://www.latinamericanstudies.org/puertorico/hurricane.pdf>
Because their island is a captive economy, Puerto Ricans are the
largest per capita importers of US goods in the world.
Instead, the following year, it outlawed all Puerto Rican currency and
declared the island's peso, whose international value was equal to the
US dollar, to be worth only 60 cents. Every Puerto Rican lost 40 percent
of his or her money
<http://digital.ipcprintservices.com/article/Pesos_To_Dollars/387415/37506/article.html>
overnight.
In 1901, the United States passed the Hollander Act
<https://books.google.com/books?id=nRdHAQAAIAAJ&pg=RA3-PA73&lpg=RA3-PA73&dq=1901+Hollander+Law&source=bl&ots=Axmh1EySO-&sig=YDyBkSi4f68AbrSnQpPcD9UrPTs&hl=en&sa=X&ei=aE3nVP_qL-21sQSYsYCADg&ved=0CEYQ6AEwCA#v=onepage&q=1901%20Hollander%20Law&f=false>,
which raised the taxes of every farmer in Puerto Rico.
With higher taxes, devastated farms and 40 percent less cash, farmers
had to borrow money from US banks. But with no usury law restrictions,
interest rates were so high that within a decade, the farmers defaulted
on their loans and the banks foreclosed on their land.
The United States, which was undergoing its industrial revolution, then
turned a diversified island harvest (coffee, tobacco, sugar and fruit)
into a one-crop, cash-cow economy.
The very first US-appointed governor of Puerto Rico, Charles Herbert
Allen
<http://www.amazon.com/American-Sugar-Kingdom-Plantation-Caribbean/dp/0807847887>,
leveraged his tenure on the island into the presidency of the American
Sugar Refining Company -- which today is known as Domino Sugar.
By 1930, all of Puerto Rico's sugar farms belonged to 41 syndicates.
Eighty percent of these were US-owned, and the largest four syndicates
-- Central Guanica, South Puerto Rico, Fajardo Sugar and East Puerto
Rico Sugar -- were entirely US-owned and covered more than half of the
island's arable land
<http://www.amazon.com/Economic-History-Puerto-Rico-Institutional/dp/0691022488#reader_0691022488>.
With no money, crops or land, Puerto Ricans sought work in the cities.
When the Puerto Rican Legislature enacted a minimum wage law like the
one in the mainland United States, the US Supreme Court declared it
unconstitutional. After a visit to the island, AFL-CIO President Samuel
Gompers held a press conference to declare
<https://books.google.com/books?id=xF4NDALYWSAC&pg=PA1218&lpg=PA1218&dq=samuel+gompers+puerto+rico+wages&source=bl&ots=fsB9xA1edb&sig=dc7WoOpX1U1Wh6-dqQbOb_xj9GY&hl=en&sa=X&ved=0ahUKEwi0wPKP7qDLAhUDmR4KHSF_DoQQ6AEIRTAI#v=onepage&q=samuel%20gompers%20puerto%20rico%20wages&f=false>:
"In all my life I have never witnessed such misery, sickness and suffering."
To make matters worse, US finished products -- from rubber bands to
radios -- were priced 15 to 20 percent higher on the island than on the
mainland. Again, Puerto Rico was powerless to enact any price-fixing
legislation.
The United States did give Puerto Ricans one "gift." Over the objection
of the Puerto Rican Legislature, Puerto Ricans were declared US citizens
in 1917 <http://www.loc.gov/rr/hispanic/1898/jonesact.html>, just in
time for military conscription into World War I.
*A Classic Colony*
After a fraudulent plebiscite in 1952, in which voting for independence
could get you 10 years in jail (see Public Law 53 -- the Gag Law
<http://www.truth-out.org/progressivepicks/item/30925-how-the-united-states-economically-and-politically-strangled-puerto-rico>),
the United States filed papers with the United Nations Decolonization
Committee, declaring that Puerto Rico had chosen to become a "free
associated state
<http://www.puertorico-herald.org/issues/2004/vol8n42/CBOnNatureV.html>"
with the US, and was no longer a colony.
Every man, woman and child in Puerto Rico will be paying $2,000
per year just to cover the interest on Puerto Rico's public debt.
However, to this day, US federal agencies control the island's
international trade, foreign relations, banking system, currency,
shipping and maritime laws, customs, import-export regulations,
immigration, postal system, radio, TV, transportation, Social Security,
military, environmental controls, coastal operations, judicial code,
civil and criminal appeals, and cabotage rights (i.e. the Jones Act). In
addition, the US Congress has plenary jurisdiction over any law or
regulation promulgated by the Puerto Rican Legislature. Congress can
veto any law
<https://issuu.com/harvardpoliticalreview/docs/november-2-1977?e=1314388/3098941>
passed in Puerto Rico.
The US military presence
<http://www.jstor.org/stable/25613040?seq=1#page_scan_tab_contents> is
overwhelming. At its peak, no one could drive five miles in any
direction without running into an Army base, nuclear site or tracking
station. The Pentagon controlled 13 percent of Puerto Rico's land
<https://issuu.com/harvardpoliticalreview/docs/november-2-1977?e=1314388/3098941>
and operated five atomic missile bases. The island of Vieques was bombed
mercilessly for 62 years. From 1984 through 1998 alone, more than 1,300
warships and 4,200 aircraft used the island for target practice, and
pounded it with 80 million pounds of ordnance.
The colonial veneer is so ludicrously transparent that José Trías Monge,
the chief justice of the Supreme Court of Puerto Rico who crafted the
"free associated state" and drafted the Puerto Rican "Constitution,"
finally threw up his hands and wrote a book titled /Puerto Rico: The
Trials of the Oldest Colony in the World
<http://www.amazon.com/Puerto-Rico-Trials-Oldest-Colony/dp/0300076185>/.
*Operation Booby Trap*
From the mid-1950s until 2006, the United States laid a red carpet from
Wall Street to San Juan. US corporations were given 10- and 20-year tax
exemptions on all gross revenues, dividends, interest and capital gains
income. Instead of growing fruit, coffee and sugar cane, Puerto Ricans
now manufactured bras and razors behind concrete walls.
Unfortunately, once Playtex and Schick found cheaper labor in Asia, the
factories all disappeared. Once the IRS 936 tax exemption expired, the
pharmaceutical companies vanished. All of them had repatriated their
profits back to the US mainland. None of them had invested in Puerto
Rico. In the end, rather than providing a true economic base and
self-sustaining growth, these corporations only produced more dependency
on the United States, and more long-term unemployment.
The program was originally called Operation Bootstrap. With typical wit
and accuracy, Rep. Vito Marcantonio named it Operation Booby Trap
<http://www.vitomarcantonio.org/chapter_9.php>.
*The Jones Act*
The greatest booby trap of all is the Merchant Marine Act of 1920, also
known as the Jones Act
<http://www.upa.pdx.edu/IMS/currentprojects/TAHv3/Content/PDFs/Jones_Act_1920.pdf>.
Under section 27 of this act, /all/ goods carried by water between US
ports must be shipped on US flag ships that are constructed in the
United States, owned by US citizens and operated by US citizens. That
means that /every/ product that enters or leaves Puerto Rico must be
carried on a US ship.
The Puerto Rico debt crisis is a national financial crisis, with
no clear resolution in sight.
This includes cars from Japan, engines from Germany, food from South
America, medicine from Canada -- any product from /anywhere/. In order
to comply with the Jones Act, all this merchandise must be off-loaded
from the original carrier, reloaded onto a US ship and /then/ be
delivered to Puerto Rico. It all makes as much sense as digging a hole
and filling it up again.
There is one major exception.
A foreign-flagged vessel may enter directly into Puerto Rico -- after
paying an extreme levy of taxes, customs and import fees, which often
/double/ the price
<http://www.businessinsider.com/r-us-shippers-push-back-in-battle-over-puerto-rico-import-costs-2015-7>
of the goods they carry.
This is not a business model. It is a shakedown. It's the maritime
version of the "protection" racket. This maritime mafia is so entrenched
that several Jones Act carrier company executives were indicted and
jailed for price rigging in Puerto Rico
<http://new.grassrootinstitute.org/2013/12/sixth-jones-act-shipping-executive-goes-to-jail-in-puerto-rico-rate-fixing-case/>.
A 40-year study
<http://docplayer.net/494027-Economic-impact-of-jones-act-on-puerto-rico-s-economy.html>
of this "cabotage cost" to Puerto Rico shows the following results:
(Credit: US General Accounting Office)(Credit: US General Accounting Office)
From 1970 through 2010, the Jones Act cost Puerto Rico $29 billion.
Projected from 1920 till the present, this cost becomes $75.8 billion.
Ironically, this $75.8 billion cost is /higher/ than the amount of
Puerto Rico's current public debt. In other words, if the Jones Act did
not exist, then neither would the public debt of Puerto Rico.
In addition, if the Jones Act did not exist, 10,000 maritime jobs
<http://jacksonville.com/news/metro/2015-01-21/story/john-mccain-plan-scuttle-100-year-old-maritime-law-unleashes-anger-first>
would immediately shift to the island from Jacksonville, Florida.
*Fourth-Largest Market for US Corporations*
The tiny island of Puerto Rico -- with only 3.5 million residents -- is
the fourth-largest market in the world
<http://www.latinamericanstudies.org/puertorico/PR-Solidarity-Committee.pdf>
for US products.
Because their island is a captive economy, Puerto Ricans are the largest
per capita importers
<http://www.amazon.com/Harvest-Empire-History-Latinos-America/dp/0143119281#reader_0143119281>
of US goods in the world.
Eighty-five percent of all fruits and vegetables
<https://news.vice.com/article/puerto-ricos-debt-crisis-empties-houses-impoverishes-citizens>
consumed in Puerto Rico are sold by US corporations.
Puerto Rico has more Walgreens stores per square mile, than anywhere in
the United States -- and more Walmart stores per square mile than
anywhere on the planet
<http://periodismoinvestigativo.com/2014/05/puerto-rico-first-in-the-world-with-walgreens-and-walmart-per-square-mile/>.
Thanks to the Jones Act, all these US products have been
"price-protected" for the past 96 years. Automobile prices are 30 to 40
percent higher
<http://www.puertorico-herald.org/issues2/2005/vol09n32/CBStickerShock.html>
in Puerto Rico than the United States.
Some products -- particularly unprocessed food items -- cost twice as
much
<http://www.businessinsider.com/r-us-shippers-push-back-in-battle-over-puerto-rico-import-costs-2015-7>
in Puerto Rico.
The tragedy of all this is that Puerto Ricans cannot afford to /pay/
these inflated prices. The per capita income of Puerto Rico is $16,400
-- roughly half that of Mississippi, the poorest US state. But the cost
of living
<http://www.theguardian.com/world/2015/jul/12/puerto-rico-cost-of-living>
is 12 percent higher in Puerto Rico than in the United States thanks to
the Jones Act.
*Shrinking Tax Base *
When the IRS tax exemptions expired in 2006
<http://articles.orlandosentinel.com/1996-08-03/news/9608021051_1_puerto-rico-ricans-section-936>,
dozens of pharmaceutical companies abandoned the island and unemployment
became rampant. With no economy of its own and no real private sector,
the government of Puerto Rico became the island's largest employer.
Over the past 12 years, 1 million Puerto Ricans have moved to the United
States, largely in search of employment. The island's tax revenue has
eroded and public debt is skyrocketing due to a population loss of 22
percent
<http://www.pewhispanic.org/2014/08/11/puerto-rican-population-declines-on-island-grows-on-u-s-mainland/>.
This unhealthy equation -- shrinking tax base plus large payroll equals
mounting public debt -- has exposed the government of Puerto Rico to the
ways and whims of Wall Street.
*Lies From Wall Street *
Puerto Rico's bonds are highly attractive because they are
triple-tax-exempt
<http://www.forbes.com/sites/richardfinger/2013/12/01/default-puerto-ricos-inevitable-option/#199c37ed5b5f>:
All capital gains are exempt from federal, state and local taxes. But
with a 22 percent population loss, Wall Street demanded a higher level
of taxation from the remaining 78 percent of island residents. The Wall
Street credit ratings services -- Standard & Poor's, Fitch, Moody's and
Dun & Bradstreet -- insisted on "fiscal austerities" in order to avoid
the downgrading of Puerto Rico's debt.
The Puerto Rican government complied
<http://www.nytimes.com/2014/02/09/us/economy-and-crime-spur-new-puerto-rican-exodus.html>.
They laid off 30,000 workers, charged 67 percent more for water, raised
electricity rates, raised property and small business taxes, hiked the
gasoline tax /twice/ in one year, cut public pensions
<http://www.reuters.com/article/puertorico-debt-pension-idUSL2N0CS0KG20130405>
and health benefits, raised the retirement age, closed 200 schools and
hiked the sales tax to 11.5 percent.
After all this austerity, three rating services still downgraded the
island's debt to "junk bond" status. In other words, Wall Street /lied/
to Puerto Rico, and then hiked the premium payments
<https://www.washingtonpost.com/business/economy/puerto-rico-bonds-downgraded-to-junk-levels/2014/02/04/c9495a22-8ddf-11e3-833c-33098f9e5267_story.html>.
And now they want to collect.
The debt service on $73 billion will be roughly $7 billion annually
<http://www.bloomberg.com/news/articles/2015-09-08/puerto-rico-bond-plan-said-to-outline-debt-service-affordability-ieatwuim>:
$4 billion on its GO (general obligation) bonds, and $3 billion for
PREPA (the Electric Power Authority) and PRASA (the Aqueduct and Sewer
Authority).
With a population of 3.5 million, this means that every man, woman and
child in Puerto Rico will be paying $2,000 per year just to cover the
/interest/ on Puerto Rico's public debt. Since per capita income is only
$16,400, this $2,000 represents 12 percent of everyone's personal income.
With a shrinking tax base, Puerto Ricans are unable to meet this
crushing debt burden. Any further "austerities" will force more people
to abandon the island -- and the tax base will shrink even further. As
Puerto Rico's Gov. Alejandro García Padilla stated
<http://money.cnn.com/2015/06/29/news/economy/puerto-rico-default/> in a
nationally televised speech, "Puerto Rico is in a death spiral."
The death spiral is so pronounced that García Padilla was recently seen
begging for a Financial Control Board, as a shield against impending
bondholder lawsuits. This is neoliberalism on steroids, a Caribbean
Hobson's choice: to be eaten by a jackal or a wolf.
*A Banquet Table for John Paulson*
While Puerto Ricans are forced to flee their own island under a pogrom
of taxes and "austerity measures," a banquet table of "business
incentives" has been laid out for US billionaires and hedge fund
operators. Two tax laws
<http://www.marketwatch.com/story/puerto-rico-woos-rich-with-hefty-tax-breaks-2014-04-22>
enacted in 2012 -- Act 20 and Act 22 -- provide 20-year tax exemptions
to high net-worth individuals on all their dividend, interest and
capital gains income. The primary beneficiary of this has been John Paulson.
Paulson deals in human misery and "distressed assets." He made his
greatest fortune -- billions of dollars -- by profiting on home
foreclosures
<http://www.nydailynews.com/news/money/queens-born-john-paulson-fortune-home-foreclosures-article-1.344791>
during the 2007 US mortgage crisis.
In 2007 alone, Paulson made more than $15 billion
<http://realestate.aol.com/blog/2010/04/28/was-john-paulson-the-goldman-scandals-real-ringmaster/>
by "short-selling the US housing market, effectively betting on its
collapse, even perpetuating the magnitude of the collapse."
Using Acts 20 and 22, Paulson has imported this business model into
Puerto Rico
<http://nypost.com/2016/02/10/john-paulson-will-encourage-investments-in-puerto-rico/>.
He currently owns the Condado Vanderbilt and La Concha Renaissance, the
San Juan Beach Hotel, the St. Regis Bahia Beach Resort and the
326,000-square-foot AIG building in the Hato Rey financial district.
He also owns 8.6 percent of Banco Popular
<http://www.barrons.com/articles/SB51005578970899454132304580142130668645828>,
the island's largest bank.
Paulson also owns a large share of Puerto Rico's "public debt." If
Puerto Rico cannot pay, and if the US Congress extends no Chapter 9
bankruptcy relief to the island, then Paulson will soon own
<http://www.nytimes.com/2015/12/20/us/politics/puerto-rico-money-debt.html>
a portion of Puerto Rico's physical infrastructure (water, electricity,
schools, roads, bridges) as the underlying collateral for this debt.
Thanks to Act 20 and Act 22, Paulson will own major pieces of Puerto
Rico without paying one cent of interest, dividend or capital gains
taxes on any of his hotel, office, banking or infrastructure income for
20 years.
The banquet table is enormous. While enjoying their 20-year tax breaks,
neither Paulson nor dozens of hedge funds want Puerto Rico to receive
access to any Chapter 9 bankruptcy protections. They want Puerto Rico to
/default/ on its debt so that the creditors can convert this debt into
P3s -- public-private partnerships -- and turn the physical
infrastructure of Puerto Rico (the PREPA electrical grid, the PRASA
water supply, highways, bridges, schools, prisons and airports) into
ATMs for the hedge fund creditors
<http://www.orlandosentinel.com/opinion/os-ed-puerto-rico-public-private-091615-20150915-story.html>.
*Puerto Rico vs. the US Capitalist System *
In this game of fiscal brinkmanship, the stakes are very high. If Puerto
Rico defaults, it would be the largest in the history of the $3.7
trillion market
<http://marketrealist.com/2014/03/puerto-rico-default-mean-us-municipal-bond-market/>
for debt sold by US state and local governments. All over the country,
pension funds will be unable to meet their payment obligations.
On the other hand, if Puerto Rico is allowed to file for Chapter 9
bankruptcy protection, then every state in the United States will demand
a similar privilege. The US financial system cannot withstand 50 states,
all potentially filing for bankruptcy at the same time
<http://www.cnbc.com/2015/10/22/puerto-rico-governor-padilla-tells-senate-liquidity-to-run-out-by-november.html>.
In addition, the $3.7 trillion municipal bond industry is more than 20
percent of US GDP
<http://www.statista.com/statistics/188105/annual-gdp-of-the-united-states-since-1990/>,
which was $18 trillion in fiscal year 2015.
With more than 20 percent of the entire US economy filtered through
these municipal bonds every year, the industry is too big to fail -- a
fundamental component of Wall Street revenue and financing, which no one
wants destabilized.
For these reasons, the Puerto Rico debt crisis is a /national/ financial
crisis, with no clear resolution in sight. President Obama is trying to
ignore it -- hiding behind Congress, the courts and the bankruptcy laws
-- but sooner or later, he will have to address it.
The entire system of municipal bond financing, pension funds nationwide
and the fiscal integrity of all 50 states are threatened by the crisis
in Puerto Rico. Even a simple debt restructuring will not resolve this
mess. So long as Puerto Rico has no real industry, economy or
entrepreneurial class, the systemic problems will deepen.
*Solutions *
The Gordian knot of predatory capitalism must be cut in Puerto Rico.
* The Jones Act must be repealed as soon as possible. This will
establish a shipping industry throughout the island and end the
price inflation of US products.
* The Jones Act carrier companies -- Crowley, Sea Star, Horizon and
Trailway -- should all be replaced by Puerto Rican shipping companies.
* All import fees levied on foreign-flagged vessels should be paid
into the Puerto Rican Treasury, not the US Merchant Marine.
* Puerto Rico must be permitted to negotiate its own international
trade agreements. This will enable it to develop capital resources,
an entrepreneurial class and a diverse economy.
* A large number of maritime jobs in Jacksonville, Florida, must be
rightfully relocated to Puerto Rico.
* Any 10- and 20-year tax abatement deals with US corporations should
require the reinvestment of a stipulated percentage of profits into
Puerto Rican infrastructure and industrial development.
*Fairness and Common Sense*
After 118 years, it is time for the United States to relinquish the
oldest colony in the world. The present arrangement -- the so-called
"free associated state" -- benefits only a few bankers, bond traders,
hedge funds, corporate executives, real estate hustlers and John
Paulson. Morally and economically, it is time to move on.
It is nakedly self-serving to inflict a Jones Act on Puerto Rico, deny
it any bankruptcy relief and then impose a hedge fund collection agency
known as "the Financial Control Authority."
It is an international scandal for the United States to turn Puerto Rico
into a land of beggars and billionaires -- bossed by absentee landlords,
fought over by lawyers and clerked by politicians.
The sooner it recognizes the fundamental evil of maintaining a hidden
colony in the Caribbean, the sooner the United States will repair its
credibility in the global community.
/A shorter version of this article originally appeared at The New York
Times
<http://www.nytimes.com/2015/08/06/opinion/free-puerto-rico-americas-colony.html?_r=1>./
--
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