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class="header"><b><small><small><a class="moz-txt-link-freetext" href="http://www.counterpunch.org/2015/07/31/speculators-circling-puerto-rico-latest-mode-of-colonialism/">http://www.counterpunch.org/2015/07/31/speculators-circling-puerto-rico-latest-mode-of-colonialism/</a></small></small></b><br>
<h1 id="reader-title">Speculators Circling Puerto Rico Latest
Mode of Colonialism</h1>
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<p class="post_meta"> <span class="post_author_intro">by</span>
<span class="post_author" itemprop="author"><a
href="http://www.counterpunch.org/author/pete-dolack/"
rel="nofollow">Pete Dolack</a><br>
July 321, 2015<br>
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<p>Puerto Rico’s governor may have said the commonwealth’s
debt is <a target="_blank"
href="http://fsrn.org/2015/06/puerto-ricos-governor-announces-islands-debt-is-unpayable/">unpayable</a>,
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.</p>
<p>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 <a
target="_blank"
href="http://www.theguardian.com/world/2015/jun/28/puerto-rico-debt-unemployment">imposing
an 11 percent cut</a> to Medicare and Medicaid for
2016 and <a target="_blank"
href="http://panampost.com/panam-staff/2015/05/18/puerto-rico-eyes-mass-school-closures-amid-economic-crisis/">more
than 600 schools may be closed</a> in the next five
years on top of the 150 already closed by budget cuts.</p>
<p>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.</p>
<p>The crisis has already been profitable for Wall Street
as banks and law firms <a target="_blank"
href="http://www.wsj.com/articles/SB10001424052702303672404579151703348313062">racked
up $1.4 billion in fees</a> 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 <a target="_blank"
href="http://www.theguardian.com/world/2015/jun/28/puerto-rico-debt-unemployment">demand
hundreds of millions more</a> in lending fees,
credit-default-swap termination fees and higher interest
rates.</p>
<p>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, <a target="_blank"
href="https://zcomm.org/znetarticle/puerto-ricos-new-party-of-the-working-people-fights-austerity/">puts
it in stark terms</a>:</p>
<blockquote>
<p>“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. …</p>
<p>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.”</p>
</blockquote>
<p>Although the neoliberal clamp has recently tightened on
the island, its current subaltern position is many years
in the making.</p>
<p><strong>A century of colonialism and the repression
that goes with it</strong></p>
<p>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’ <em><a
target="_blank"
href="http://waragainstallpuertoricans.com/historical-overview/">War
Against All Puerto Ricans</a></em> 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.</p>
<p>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.</p>
<p>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 <em>Fortune</em> 500 ($35.9 billion)
were more than the profits for all the other 490
businesses combined ($33.7 billion).</p>
<p>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 <a
target="_blank"
href="http://www.democracynow.org/2010/10/29/puerto_rico_marks_60th_anniversary_of"><em>Democracy
Now!</em> commentary</a> in 2010 on the 60th
anniversary of the Jayuya independence uprising, Juan
Gonzalez said:</p>
<blockquote>
<p>“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.”</p>
</blockquote>
<p>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:</p>
<blockquote>
<p>“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.”</p>
</blockquote>
<p><strong>Education, health care cuts so hedge funds get
paid</strong></p>
<p>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, “<a target="_blank"
href="http://www.centennial-group.com/downloads/For%20Puerto%20Rico%20There%20is%20a%20Better%20Way.pdf">For
Puerto Rico, There is a Better Way</a>,” 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.</p>
<p>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.</p>
<p>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 <a target="_blank"
href="http://www.latinorebels.com/2015/07/14/out-in-the-open-hedge-funds-in-puerto-rico/">most
complete list of the companies</a> that are getting
ready to renegotiate or demand complete payment of the
debt.”</p>
<p>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.</p>
<p>Aurelius is a notorious speculator that joined with
vulture-capitalist Paul Singer to <a target="_blank"
href="https://systemicdisorder.wordpress.com/2014/06/18/financiers-more-sovereign-than-argentina/">demand
Argentina pay full face value</a> 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 <a target="_blank"
href="http://hedgeclippers.org/hedgepapers-no-17-hedge-fund-billionaires-in-puerto-rico/">squeezing
the Republic of Congo-Brazzaville</a>, an episode in
which <a target="_blank"
href="http://www.truth-out.org/news/item/3772:ubervultures-the-billionaires-who-would-pick-our-president">$400
million was demanded on bonds</a> bought for less than
$10 million from a country where children die from
malnutrition.</p>
<p>Another on the list is John Paulson, who has been busy
<a target="_blank"
href="http://www.theguardian.com/world/2015/jul/25/puerto-rico-debt-crisis-billionaires-hedge-funds-good-news">buying
up luxury properties</a>, 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.</p>
<p><strong>Power-company ratepayers expected to pay for
profits, too</strong></p>
<p>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) <a target="_blank"
href="http://www.bloomberg.com/news/articles/2015-07-24/hedge-funds-to-benefit-most-in-puerto-rico-proposal-sims-says">propose
a plan</a> 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.</p>
<p>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:</p>
<blockquote>
<p>“[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.”</p>
</blockquote>
<p>Puerto Rico is due to make <a target="_blank"
href="http://www.ibtimes.com/puerto-ricos-debt-addiction-was-fed-banks-passed-risk-bond-buyers-1990649">$5.15
billion in debt payments</a> 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 <a target="_blank"
href="https://systemicdisorder.wordpress.com/2012/11/28/in-show-of-power-financiers-impose-will-on-argentinas-navy/">Argentina</a>
and <a target="_blank"
href="https://systemicdisorder.wordpress.com/2013/08/07/wall-street-plunders-detroit/">Detroit</a>,
the future does not look rosy for the working people of
Puerto Rico.</p>
<p>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.</p>
</div>
<p class="author_description"> <i><b>Pete Dolack</b> writes
the <a href="http://systemicdisorder.wordpress.com/">Systemic
Disorder</a> blog. He has been an activist with
several groups</i>. </p>
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