“I felt that the price we paid was outrageous; but we had done our best. That it was a good investment, however, we had the assurance of the New York bankers who loaned us the funds for the purchase as well as for extensions and improvements. The negotiations leading up to this had been long and devious. In fact, when we finally came to the point of paying too much and borrowing under conditions and at rates calculated to please Wall Street, we were suddenly regarded benignly by all the powers that be. I had thought that we ought to be castigated for the deal. But that did not happen. There was not a word of criticism and a good deal of congratulation. The people of Puerto Rico would pay for it over a period of some twenty years in inflated rates; but absolutely no one showed any concern over that.”
So said Rexford G. Tugwell, the renowned economist and planner whom Franklin D. Roosevelt appointed governor of Puerto Rico, describing his efforts to modernize Puerto Rico’s electricity infrastructure. Governor Tugwell consolidated Puerto Rico’s disparate private electricity companies into one government-owned monopoly.
The more things change, the more they seem the same.
Once again Puerto Rico faces an economic and political crisis and once again, it is Wall Street financial firms who are first in line, waiting to reap outrageous sums of money and in the process, leave the people of Puerto Rico holding the bag.
The island of Puerto Rico is an anomaly in the modern world. According to the U.S. Supreme Court, Puerto Rico belongs to but is not a part of the United States. It doesn’t have access to Chapter 9 bankruptcy, nor does it qualify for assistance from the International Monetary Fund or the World Bank. Puerto Rico is subject to Congress, but the island doesn’t have constituencies or political representation that can demand that the Congress take action to solve its problems.
There are 3.5 million U.S. citizens who live in Puerto Rico and they currently face almost $70 billion of government debt. The cost of servicing that debt makes it impossible for the Puerto Rican government to invest money in anything else, including providing basic services to citizens.
But as happened 70 years ago, Wall Street financiers and their paid representatives have a vested interest in making the situation worse on the island before it gets better. Many of these financiers are lobbying the U.S. Congress to do nothing to solve the debt problems of the island until they get paid first.
A simple solution would be for the Congress to provide blanket bankruptcy protection to all debt-creating agencies on Puerto Rico so that the government could start digging itself out of the massive weight of its enormous debt. From there, the government agencies could stop digging themselves into a deeper hole and start implementing pro-growth policies that will jump start the Puerto Rican economy.
Will Congress take this step?
It’s unclear at this point. What is clear is that Wall Street financial firms have hired lobbyists and lawyers to take care of their concerns first and leave the concerns of the people in both America and in Puerto Rico behind.
In this sense, financial firms, whose significant lobbying expenditures have prevented any progress, are in reality taking Congress down a primrose path of irresponsibility. When the end comes and the commonwealth runs out of runway, as it undoubtedly will sooner rather than later, it will be Congress and Main Street left holding the bag for a massive bailout to which Wall Street will neither contribute nor accept responsibility.
Miguel A. Soto-Class is the president of the Center for a New Economy, an independent think-tank headquartered in San Juan, Puerto Rico. He is an editor of The Economy of Puerto Rico: Restoring Growth, published by the Brookings Institution. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.
