Puerto Rico is being put into an austerity vice by US hedge funds. (Photo of Flag of Puerto Rico: Damian Entwistle)
According to a July 28 article in the Guardian, the financial vultures of the US are circling over Puerto Rico’s skyrocketing debt, which totals more than $70 billion dollars. It is an austerity-driven death watch that by now is common practice among predatory “debt distress” consolidators:
Billionaire hedge fund managers have called on Puerto Rico to lay off teachers and close schools so that the island can pay them back the billions it owes.
The hedge funds called for Puerto Rico to avoid financial default – and repay its debts – by collecting more taxes, selling $4bn worth of public buildings and drastically cutting public spending, particularly on education.
The group of 34 hedge funds hired former International Monetary Fund (IMF) economists to come up with a solution to Puerto Rico’s debt crisis after the island’s governor declared its $72bn debt “unpayable” – paving the way for bankruptcy.
The funds are “distressed debt” specialists, also known as vulture funds, and several have also sought to make money out of crises in Greece and Argentina, the collapse of Lehman Brothers and the near collapse of Co-op Bank in the UK.
Do you see a pattern here? Vulture capitalists, predatory lenders, austerity, hundreds of billions of dollars in interest (profit) made through impoverishing people and cutting public services.
The report that the Guardian refers to is merciless in encouraging austerity and particularly in cutting back on education spending in Puerto Rico. The self-serving industry “study” disregards the economic deprivation that plagues the majority of children on the island, which is a commonwealth of the US – meaning it has neither the rights of state nor the independence of a sovereign nation. Current spending on education is already dismally low, according to the Guardian article:
It [the study] accused the island, where 56% of children live in poverty, of spending too much on education even though the government has already closed down almost 100 schools so far this year.
Puerto Rico’s current education spending works out at $8,400 per student, below the US national average of $10,667.
Nelson Denis’s eye-opening historical book – War Against All Puerto Ricans: Revolution and Terror in America’s Colony – recounts how the United States brutally subjugated Puerto Rico into effective colonial status after “acquiring” the island by winning the Spanish-American War in 1898. The book provides context as to how the “commonwealth” has – from the very beginning of US rule – been treated as a possession to be utilized for the benefit of the US mainland plutocracy.
In an interview with Truthout, “How the United States Economically and Politically Strangled Puerto Rico,” Denis spoke about the latest devastating economic crisis in Puerto Rico and the intervention of vulture capitalists:
Most recently this “intervention” has taken the form of Act 22, which provides high-net-worth US investors with a 20-year tax exemption on all capital gains, interest and dividend income derived from their investments in the island. The prime beneficiaries of this tax giveaway are US billionaires such as John Paulson, who made $15 billion for his hedge fund by betting against the American economy and against the American homeowner, during the 2007 mortgage crisis.
Paulson is now leading the charge into Puerto Rico….
Puerto Ricans are being subjected to gasoline tax hikes (two in the past year), skyrocketing water and electrical costs, a looming 11.5 percent sales tax (aka IVU), pension rollbacks, worker layoffs, water rationing, student tuition hikes, and small business tax hikes – in order to meet the interest payments (not even the capital payments – just the interest) on the $73 billion of public debt.
But Paulson and friends are receiving corporate welfare and tax havens of the highest order.
It is imperative – to fully understand how exploitative the proposed austerity measures would be – to emphasize that the hedge funds and other holders of the island’s debt are making billions of dollars of interest on the island’s debt. They are profiting, and will continue to profit, off cutbacks that accelerate the decline in Puerto Rico’s standard of living and public services.
Adding to the cruelty of the financial demands being placed on Puerto Rico, as of June, its unemployment rate towers over any of the 50 states. At 12.6 percent, the island’s jobless statistics are twice that of the nearest state jobless percentage.
The Guardian article quoted Luis Gallardo, majority municipal legislator for the city of Aguas Buenas:
They [the hedge funds] are proposing teacher layoffs, cuts in higher education and health benefits, as well as increased taxes. These proposals have been a disaster for Latin America and would be so for Puerto Rico. Sure, Puerto Rico could pay its debt, but at what cost? We are literally cutting off our own limbs just to stay afloat.
The Puerto Rican government has already closed down almost 100 schools this year [see above] and reconfigured 500 more, as well has having closed down 60 the year prior. I am not sure what else they are expecting.
Luis Gallardo’s indignation could represent all the southern nations and colonies when he says, in the Guardian article, “If they expect us to lay off teachers or cut their already-low salaries, they are out of their minds.”
This expression of outrage – from someone concerned about the actual people who are being victimized by financial predators – could equally come from the mouths of people in Greece, Argentina and every other nation or colony that has been subject to the demands of “economic structural change.”
The goal of creditor nations and plundering hedge funds and other financial institutions is to increase indebtedness and economic dependency.
Unfortunately, at the moment, Puerto Rico is a key target for their merciless debt subjugation.