Puerto Rico: a US debt colony hounded by hedge funds

Published on ZNet (first on Roarmag.org), by Jérôme Roos, Aug 22, 2015.

On August 1, Puerto Rico defaulted on part of its enormous $72 billion debt, paying back only $628,000 on a $58 million loan that was due at the start of the month. The default, which marks the most serious credit event in US state and municipal bond markets since the city of Detroit filed for bankruptcy in 2013, has led many to draw obvious comparisons to Greece – and understandably so.  

Like Greece, Puerto Rico has been mired in a protracted recession that has seen unemployment rise, living standards fall and countless people leave their homeland in search of better life opportunities abroad. Like Greece, Puerto Rico is buckling under an unsustainable debt load that its leaders claim “cannot be paid.” And like Greece, Puerto Rico is effectively a ward of the larger union of which it is a part: Greece of the Eurozone and Puerto Rico of the United States.

But for all these obvious similarities, there is one puzzling difference: while Puerto Rico was allowed to default on its debts without drawing much ire – or interest – from the US government, Greece has not been able to do the same. Why was Puerto Rico allowed to default while Greece was not? The answer is simple: first follow the rules, then follow the money – and you will see … //

… Meanwhile, even though it cannot apply for an IMF bailout, the Puerto Rican government has already called in the help of three ex-IMF officials, including the Fund’s former deputy chief economist Anne Krueger, for advise on how to proceed. In a report published at the end of June, the three advisors called on the government to fire thousands of teachers, close schools, increase property taxes, suspend the minimum wage and slash the amount of paid holidays in half.

Perhaps, then, Puerto Rico’s default is not all that different from Greece’s non-default after all. Barely a month after Eurozone officials incorporated Greece as a de facto economic protectorate, US investors appear to be adamant to exact the same kind of discipline from their own long-standing debt colony. Default, it seems, is fine – as long as the bankers and the vultures are repaid.

(full text).

(Jerome Roos is a PhD researcher in International Political Economy at the European University Institute, and founding editor of ROAR Magazine (on en.wikipedia). Follow him on Twitter at @JeromeRoos).


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