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Guest Host: Maria Hinojosa
Puerto Rico needs help. The U.S. territory owes its creditors more than $70 billion, and without some kind of financial assistance it’s likely to default on its debt payments before June. There are bipartisan Congressional efforts underway to come up with a lifeline. The strategy could involve giving Puerto Rico access to bankruptcy provisions or creating a federal control board or both, but most agree Puerto Rico’s problems won’t go away unless its long term economic slide can be reversed. Meanwhile, Puerto Rico’s many creditors, including hedge funds and ordinary citizens in the U.S. and in Puerto Rico, face steep losses: Join us to discuss what’s next for Puerto Rico and why it matters.
- Gretchen Sierra-Zorita Member, National Puerto Rican Agenda, a coalition of leaders and organizations working on the Puerto Rico fiscal crisis
- Frances Negrón-Muntaner Director, center for the study of ethnicity and race, Columbia University, award-winning filmmaker, writer and scholar
- Barry Bosworth Senior fellow, economic studies, The Brookings Institution
- Sam Alberts Attorney with expertise in financial restructuring and bankruptcy, Dentons
MS. MARIA HINOJOSAHello and thank for joining us. From WAMU and NPR in Washington, D.C., I'm Maria Hinojosa. I'm host of NPR's Latino USA and I'm sitting in for the amazing Diane Rehm. Such an honor to be here. Now, you've seen the ads and you've seen the commercials on television beckoning you to come to this Caribbean paradise, Puerto Rico. But the island is in such a crisis that this even exists, #puertoricocrisis.
MS. MARIA HINOJOSAThe government of Puerto Rico is running out of cash. The U.S. territory faces debts of more than $70 billion and is facing the daunting task of keeping basic services going while somehow finding a path toward a recovery and economic growth. Joining me to explain Puerto Rico's predicament and the stark choices ahead, Gretchen Sierra-Zorita, who is with the National Puerto Rican Agenda, among many other organizations involved with Puerto Rico.
MS. MARIA HINOJOSABarry Bosworth of the Brookings Institution, Sam Alberts who is an attorney with expertise in financial restructuring and bankruptcy from Dentons. And on the phone with us from Columbia University, Francis Negron. And so we're going to start, Gretchen. I think we have to make the assumption that a lot of people don't know a lot about Puerto Rico, but let's start first, before we go kind of to the bigger quick history of Puerto Rico, the crisis right now regarding debt, explain how this debt started to mount up and why.
MS. GRETCHEN SIERRA-ZORITAFor that, you need a little bit of history.
HINOJOSAI know. We need a lot -- so you got to do this in like...
SIERRA-ZORITABut not too much, okay.
HINOJOSA...about a minute and a half.
SIERRA-ZORITAWe will, we will. This debt has mounted because we basically have a broken economic model in Puerto Rico. People treated debt as--as a new problem, a recent problem or something that has been caused by recent administrations in Puerto Rico. It hasn't. Puerto Rican governors have been borrowing to fund operating costs since the late 1970s from both parties. So it's an ongoing phenomenon. And part of it is that the economic growth model that was developed in the 1950s for Puerto Rico is no longer working.
SIERRA-ZORITAThat was a model for an emerging economy. In the meantime, a lot of things have happened, including globalization. Some of the model's features has tax exceptions have been taken away so we no longer have corporate tax exceptions that attracted employment to the island. So as a result of a failing economic model, we just don't have the resources. And so keep the government running, we have continually borrowed till we find ourselves in this situation.
HINOJOSAAnd that was great, actually.
HINOJOSAThat was a quick summation. I think it's important to note that Puerto Ricans actually had very little to say about any of what you just said, correct, because they actually have the right of self determination, their voice in Congress very muted so a lot of these decisions were made...
SIERRA-ZORITAWell, and so far as economic model, it is something that, to revise it, does need federal participation because we are a territory, a colony, if you will, and therefore any revisions to the economic model cannot be done by ourselves alone. It just cannot be done. So in that regard, they don't have that type of control, but they do have some control in who they vote for and the fact remains that Puerto Rican politics have been so involved with the issue of the status, which, again, goes to our being a territory, that positions of status are rewarding at the voting -- when it's time to vote, people reward people's position on the status rather than their public administration expertise.
SIERRA-ZORITASo the territorial issue has creeped into our voting boxes, so to speak, and has kind of taken people's attention from the matters of public administration. S in that regard, they are partly responsible.
HINOJOSAAnd it's important to note when you talk about status -- 'cause, again, I don't want to make the assumption that everyone across the country understands. When we're talking about status, we're talking about the fact that Puerto Rico is not independent. It is not sovereign. It is a territory of the United States. And when people talk about status, it's trying to understand what could change in the future. Would Puerto Rico become a state? Would Puerto Rico become independent?
HINOJOSAWould it remain as it is? Let me just get to you, Barry Bosworth from the Brookings Institution. Just so that we have a sense, how does Puerto Rico's economic situation compare to some of our states, for example? So we have something to compare it to.
MR. BARRY BOSWORTHI think that's a good comparison. Puerto Rico is far poorer than the poorest state in the United States. Americans need to know, I think, that Puerto Ricans are American citizens, but they're income is one-third of the national average. It is a very poor island. It's got very limited job opportunities on the island. Labor force participation is very low. So there are very few jobs, very high unemployment. Labor force has been shrinking over time. The economy has been shrinking for 10 years now.
MR. BARRY BOSWORTHAnd people are just leaving. Migration to the mainland has accelerated. The overall population's declining. Because they are American citizens, they can always go to them mainland. And since there's no jobs on the island, many of them are packing up. The most dramatic group that's packing up right now, doctors and nurses and so the medical system is losing huge numbers of professionals.
HINOJOSAAnd, you know, I know that you've heard this before, Barry, when people call Puerto Ricans immigrants. This is not a correct term. Puerto Ricans are not immigrants to the United States. They are migrating north, but they should not be confused as being part of an immigrant population. They are American citizens by birth.
HINOJOSAOkay. So Francis Negron from Columbia University, you say that the story in Puerto Rico goes far beyond the financial issues that, you know, right now if you're reading The Wall Street Journal, the New York Times, The Washington Post, you're hearing a lot about the financial crisis. But you say that the story in Puerto Rico goes beyond that. So clue us in and actually, Francis, if you wouldn't mind, maybe you should start out by telling our audience why they should care about what's happening in Puerto Rico.
MS. FRANCES NEGRON-MUNTANERWell, Puerto Rico has been, I guess, in the orbit of the United States since 1898 so it's over 100 years relationship. There are more Puerto Ricans living in the United States than in Puerto Rico so this is a part of the United States. I think as we care for every other part of the United States and beyond, I think we should care what happens in Puerto Rico. It's part of American history, American culture and American politics.
MS. FRANCES NEGRON-MUNTANERTo the earlier part of your question, I think there's a lot to say about that, but if we look at the entire trajectory of the U.S. presence in Puerto Rico, you can pretty much notice that although there have been moments of greater prosperity than right now, the rates of poverty in Puerto Rico have not been ever eliminated. It's always been very high rates of poverty and that's remained a fairly constant feature of the Puerto Rican economy for over 100 years.
MS. FRANCES NEGRON-MUNTANERSo although the current crisis has roots in particular moments in the last decade and before that in the '70s, I was mentioning earlier, I think overall, we have a model, an economic model that has shifted through time, but has never really been adapted to the conditions of the local population or to the advantage of Puerto Ricans. It's always been to the advantage of particular sectors of the U.S. economy in the mainland.
HINOJOSARight. So if you're just listening to us, we're discussing Puerto Rico and we'll be taking your comments and questions throughout the hour. You can call us at 800-433-8850. Send us your email at firstname.lastname@example.org or look for us on Facebook and on Twitter. Barry Bosworth from the Brookings Institution, this is not a new phenomenon, as Francis Negron just said, from Columbia University. The economic issues, the poverty, the migration, none of this is new and yet, right now, there is this explosion of -- well, it is a crisis, absolutely.
HINOJOSABut it seems me that, you know, sometimes, with Puerto Rico, it's like, oh, well, you know, it'll take care of itself and the turning away from it when it's always been there.
BOSWORTHNo, I think that's right. The problem is that the rate of economic decline has accelerated dramatically in the last 10 years now. Puerto Rico used to be held up a long time ago, admittedly, before the 1970s, as an economic success story. It was a very poor country or island. It had a strategy for economy development, which was based on cheap labor for manufacturing purposes. When we got rid of tariffs, lowered the tariff wall around the United States, all of a sudden, people in Puerto Rico had to compete with people in Asia, for example, or the modern equivalent of it, China.
BOSWORTHAnd they couldn't. So all the manufacturing assembly work basically left. Now, they're low skill, but they're not as cheap, so to speak, as somebody in Asia so they're not competitive in that manufacturing sector anymore. They used to be making big progress in improving the educational skills of the workforce. In most recent years, the education system started to collapse in Puerto Rico, particularly at the kindergarten through high school level.
HINOJOSABut so some people might -- the question of tariffs. So just let's get this straight. So Gretchen, it used to be that companies doing business in Puerto Rico did not have to pay federal subsidies, correct? Or they were basically tax-free.
SIERRA-ZORITAThey had tax exemptions and they varied over the years.
HINOJOSASo that made it very attractive for businesses to relocate to Puerto Rico.
SIERRA-ZORITAYes. And the assumption was that they would bring jobs with them, which they did, but they did not bring the level of jobs that were attributed to the tax exemptions and that was why between 1996 and 2006, they were phased out, which coincides with the beginning of the Puerto Rican recession, which is 2006. They may not have been the entire cause, but definitely it did not help.
SIERRA-ZORITASo going forward, we need -- tax exemptions are still on the table, but they have to be the types that promote job growth in the island by island businesses and for island people and not jobs that can go away with these companies when they leave.
HINOJOSAAll right. We're having a conversation about Puerto Rico and how it -- what's happening in Puerto Rico actually could impact you. We're going to continue our conversation coming up so don't go away.
HINOJOSAWelcome back. I'm Maria Hinojosa from NPR's Latino USA, and I'm sitting in for the Diane Rehm. We're talking about Puerto Rico with Gretchen Sierra-Zorita. She is an advocacy and policy consultant on many Puerto Rican issues. Frances Negron-Muntaner is with us from Columbia University. She's the director for the Center for the Study of Ethnicity and race in New York. Barry Bosworth is with us here. He's a senior fellow in economic studies from The Brookings Institution. And Sam Alberts is an attorney with Dentons with an expertise in bankruptcy.
HINOJOSASo we've got a lot of issues that are coming up, but one of the -- to again, to help people understand how this affects us on the mainland, Puerto Ricans can leave their country, leave their island at any point and come to the United States. They don't need a visa. They don't need anything. And right now let's talk a little bit about how these American citizens have been voting with their feet. Five million have left, 3.5 million are left on the island. Can you help us, Gretchen, understand what the numbers look like?
SIERRA-ZORITANo, there's three -- there are 3.2 on the island, and there are -- no, 3.5 on the island. Okay, let's start, 3.9 we started and down to 3.5. That happened over the last decade. So we went from 3.9 to 3.5 on the island, and in the States we have currently 4.2. So at 3.5 on the island, 4.2 in the States, what's significant in the States is that for the first time we have a million Puerto Ricans in Florida, a swing state, and that could change a lot of things.
HINOJOSAAll right, so you went there right away, Gretchen.
HINOJOSAI'm not surprised. Frances, maybe you want to jump in. So there's something that I say actually because I've covered a lot of politics and a lot of politics revolving around Latino voters, and actually when you think about Puerto Rican voters in the state of Florida, in Central Florida, I actually call them the most powerful Puerto Ricans in the world because they can swing the state of Florida. Frances, help us to understand what the -- how the conversation that's going on now vis-à-vis Puerto Rico is tied to what Gretchen so quickly brought up, which is presidential politics.
NEGRON-MUNTANERYeah, I mean, the patterns of migration for Puerto Ricans have shifted. Before, during the middle of the 20th century, mostly Puerto Ricans were going to the Northeast, to -- a little bit to the Midwest, Chicago, but now mostly they're going to Florida and other states that they weren't going before, like Texas -- in large numbers like Texas and California.
NEGRON-MUNTANERThe Florida situation is that in a very short period of time, relatively speaking, there is an enormous amount of people concentrated in a very particular space because that's the other thing, they're not just all over the state, they are very heavily concentrated, with means that they can leverage their voting in ways that they wouldn't be able to if they were more dispersed.
NEGRON-MUNTANERPuerto Rican voters tend to vote Democratic, in general, and as other Latino voters in other parts of the country, they also expect a lot from the state in providing for a safety net, in providing for equal opportunity for all citizens. So I think in that regard, if those values are set in motion in the elections, I think you're going to see a large number of Puerto Ricans voting Democrat.
HINOJOSAWhich of course has a huge impact. Gretchen, there was some news this week, there is news this week, the House held a hearing yesterday on Puerto Rico. So what was talked about at this hearing?
SIERRA-ZORITAThat hearing was about the establishment of a financial control board, and which has become a real issue because it seems that it's almost a precondition for Republicans to become involved in Puerto Rico. So they're just exploring the different aspects of the Financial Control Board, which is tricky, and we can go into right now, for many reasons. First, there's the issue of what will it control, what are the extent of its power.
SIERRA-ZORITAAnd then there's the issue of Puerto Rican autonomy and sovereignty of Puerto Rico. Why this is so sensitive is because between 1898 and 1952, Puerto Rico's governors were appointed by the president, and during that period, there were times where there were actions taken that were deemed either oppressive or rapacious, and Puerto Ricans still remember that. It was a very humiliating time for a lot of people and a very oppressive time especially for people who favored independence.
SIERRA-ZORITAAnd so this is a sensitivity that's shared by all Puerto Ricans. So they do not want to go back to that. So any financial control board, or it didn't have to be a financial control board, any oversight mechanism that is independent is going to have to be sensitive to that, and it is going to have to have a substantial number of Puerto Rican stakeholders so they can buy into the process and make this move forward. It's going to be very tricky to have something independent and yet with heavy Puerto Rican participation and involvement so that they feel that it -- they are owning the process at some level.
HINOJOSAAll right, so Sam Alberts, you're an attorney from Dentons. You have an expertise in financial restructuring and bankruptcy, not in politics. So let's just move from what Gretchen said now to we're not talking about an oversight board, we're just talking about what can be done financially. And probably some people are saying, well, you know, other states, other cities in the United States have been helped. They declare bankruptcy. It's not something they like. But in the case of Puerto Rico, is that even a possibility?
MR. SAM ALBERTSA good question. The answer is no at the moment. In fact, due to a change in the bankruptcy laws in the mid-1980s, Puerto Rico's ability to file for bankruptcy or its municipalities was removed from the bankruptcy code, and in fact there is an argument pending in the U.S. Supreme Court about whether or not the fact that Puerto Rico cannot access the bankruptcy codes but also can't institute its own laws to restructure is somehow unconstitutional. So that issue is coming to the fore.
MR. SAM ALBERTSAt the same time, we are really seeing an acceleration of the problems that Mr. Bosworth was just talking about in terms of economic worsening. Now even though it is -- what I do is financial restructuring in a legal sense, when you're dealing with municipalities, they're -- it's a very political process. You know, whether it is Detroit, where it was a bankruptcy, or it is the District of Columbia, where they used an oversight board to get the district not only back on its financial feet but to -- those who live and work in the D.C. area know the city is a very different place than it was when the control board took over. The city's done quite well.
MR. SAM ALBERTSSo what I would look at as a restructuring person are what are the tools in my toolkit to solve this problem, and Puerto Rico doesn't have one of the major tools, which is bankruptcy, but as was mentioned by Gretchen, there is a lot of concern, and it's not just on the Republican side, I think there are Democrats, well, who acknowledge that there has to be oversight to run this process so that people will engage and feel that it is not a lopsided process against them.
MR. SAM ALBERTSSo bondholders, for example, are very concerned about what a bankruptcy means in certain people's hands as opposed to if it's being overseen by a control board.
HINOJOSASounds complicated. Frances, do you want to jump in in terms of what you think the possible solutions could look like?
NEGRON-MUNTANERYeah, I mean, at first I'd like to say about the bankruptcy that as mentioned, this was something that was available before and was taken away. So in that regard it speaks to the arbitrariness of some of the setup in Puerto Rico that's causing or is contributing to the current crisis. So I would say that we do need more tools, and I see no reason why territories cannot have access to bankruptcy as a tool. I also think that we need an audit of the debt to determine if any of it was acquired illegally and to increase accountability.
NEGRON-MUNTANERI think there are laws that are in place right now that also hurt Puerto Rico that could be changed, for instance abolishing the Merchant Marine Act, providing federal program parity. I mean, I think it's incredible that the territories are the poorest parts of the United States, yet they are disadvantaged in critical programs like health care that then force local governments to try to make up the difference. And of course approve some kind of restructuring mechanism law, by bankruptcy or by all of the mechanisms.
NEGRON-MUNTANERI don't think there's a single silver bullet to address the issue. We're going to need a lot of different measures that address different parts of the structural problem that we have. So it's not only the debt but everything that contributes to Puerto Rico having an economic model that's not viable.
HINOJOSAOkay, so I want -- because there was a piece yesterday in the New York Times from Aguadilla, where it showing an ice skating rink and everything lit up, and it just looked, like, wow, things are great in Puerto Rico, which is very confusing if you talk about, you know, #puertoricocrisis. So can you, Gretchen, tell us what this actually looks like on the island? What, when we're talking about restructuring and et cetera, but what does it actually look like on the island right now?
SIERRA-ZORITAIn terms of electricity or in terms of everything?
HINOJOSANo, no, no, in terms of people's lives.
SIERRA-ZORITAYou know, I personally feel that it feels like the paint is peeling off everything, buildings, people, you know, psychologically. It just has this because it is clearly -- you see a lot of closed businesses. You see a lot of residences where you know something's going on because the lawn is not being mowed, which is something you have to do in Puerto Rico constantly because of the rain. You see things like the fact that we were carrying buckets of water from about May to about October because our reservoirs have not been dredges, and so there's silt, and so they could not sustain sufficient water. So when we hit our drought period, we did not have enough water to go around the whole of Puerto Rico. That has never been done before.
SIERRA-ZORITAYou have a situation where the electrical grid is not working. You have more brownouts and more power outs. People that can will have generators. People that don't have to make do.
HINOJOSASo you're talking about people, American citizens, who are living without electricity potentially?
SIERRA-ZORITAIf that happened in California, which has -- I mean, how much did we hear about the California drought? How many people heard about the Puerto Rican drought here? I mean seriously, the drought in Puerto Rico was a really hard thing to go through, especially if you have people that are at home, that are housebound and so forth. I personally do. So, you know, these are things that are going on to American citizens and are not getting the kind of coverage, and we're grateful for you having us here.
HINOJOSAWell again, I think it's important. Barry, if you can tell us, you're with the Brookings Institution, again this matters to American citizens on the mainland because of what, in your view?
BOSWORTHWell, one, large-scale immigration, movement of people to, say, Florida is beginning to cause serious problems in Florida. They can't -- at first these people could all get jobs. Now there's reports of increasing difficulties of trying to get jobs, and homelessness now is growing in Central Florida. So this is a burden on the Florida population if it gets too large. When it was a sort of steady, moderate one, it's a very good idea, I think, for people to do this.
BOSWORTHBut it's costly on the mainland, one, and two, I think there's a lot of concern in the Congress that somehow the other American taxpayers will be expected to organize some sort of a bailout for Puerto Rico. They're very unwilling to do that. They're worried about the precedent that Puerto Rico would set. There are states in trouble. U.S. states are not allowed to declare bankruptcy in any form, either. They are sovereign entities. But we know that some, like Illinois, have serious difficulties with their pension funds.
BOSWORTHIs this going to become more and more of a practice of trying to declare bankruptcy as a way to escape some of your obligations? Republicans in the Congress seem quite worried about that, and I think the control board was designed to reassure them that this was a unique situation. We'll have a way to make sure it's not attractive to do in other cases.
HINOJOSAAnd we're talking about Puerto Rico and how what's happening on the island impacts you with Gretchen Sierra-Zorita, who an advocacy and policy consultant on Puerto Rican issues, Frances Negron, who is the director of the Center for the Study of Ethnicity and Race at Columbia University, Barry Bosworth, who is with the Brookings Institution, and attorney Sam Alberts. And you are listening to the Diane Rehm Show. If you'd like to call us, the number is 800-433-8850. You can send us an email, or you can send us an email, yes, to email@example.com.
HINOJOSAOkay, so Sam, you were shaking your head a little bit as Barry was speaking in terms of -- lay it out a little bit for us. What is the potential loss? If something happens in Puerto Rico, am I going to feel the impact on it? Are my taxes going to be impacted or no?
ALBERTSThe potential, I was actually nodding in agreement with Barry. I think that yes, there is the issue of people coming up from the island. I also think that it has an effect in a couple of ways. One, you know, the idea of bankruptcy for municipalities is not new now. It was very popular back in the 1930s, when we were facing a crisis, and I think people need to think about what that means about America at this point and how we are doing financially as we're weighing this.
ALBERTSNow a few years ago, somebody on Wall Street predicted that there would be many, many more municipal bankruptcies than there are currently. Not every state, and this is an interesting point, not every state allows for its municipalities to file for bankruptcy. Some do, some do not. Illinois, for example, doesn't, and so that's why you have a situation in Chicago that people wonder how they're going to resolve.
ALBERTSPuerto Rico hasn't even been given the opportunity to decide for itself whether to file for bankruptcy, and that has become a gating issue.
HINOJOSAAnd can Puerto Rico decide for itself?
ALBERTSWell, at the moment, no, and normally a state could not file for bankruptcy. The question is, could Puerto Rico allow for its municipalities and its municipal organizations like the power authority or the sewer authority to file for bankruptcy. At present, it can't. One idea that had been floated by the White House was allowing Puerto Rico itself to put itself into bankruptcy, almost like a super-municipal structure, which is not done anywhere else. That issue is still on the table, but I don't think it's gained much traction.
ALBERTSI do think a point that Gretchen has raised, which is there seems to be a dynamic that is arising now where, you know, for a long time Republicans have said we want a control board, more on the Democratic side, they said let's give authority for a bankruptcy, and what you may see as a compromise is a control board coupled with the ability of that control board to put entities into bankruptcy in Puerto Rico, to give that control board the tools.
ALBERTSI look at this almost optimistically, in a way. I realize that's kind of strange, but as a restructuring attorney, what we get a lot of pleasure out of is actually restructuring and fixing a problem. And Puerto Rico, I think, has tremendous potential. It has been on a negative trajectory, but it's a beautiful island, and I think that the key is to try to create incentives where people move back to the island, and the economy can grow. And in fact you can't do any of this, really, without growth on the island. People talk about bailouts, but...
HINOJOSABut when you talk about growth on the island, just before we move to a break, growth where? What is your vision of economic growth on the island? Paint a picture of what that looks like.
ALBERTSWell, I think what you have to do is you have to incentivize people to, one, stay and move back. I think that you could -- you could enhance growth by removing a -- there was a mention by Prof Negron about removing the Jones Act, which really creates a hard economic disincentive for businesses to do business on the island. There was, in the mid-'90s, the starting of eliminations of tax incentives, which had created a nice industry for the pharmaceutical industry to grow there.
ALBERTSI think you can do things through government policy, which is not a bailout but which gives Puerto Rico an economic advantage, or at least a thumb on the scales, to help move that in the right direction.
HINOJOSAAnd we're going to continue our conversation about Puerto Rico and actually what the Supreme Court might be doing regarding Puerto Rico. Your calls and questions coming up. Please stay tuned.
HINOJOSAWelcome back. I'm Maria Hinojosa from NPR's Latino USA, and I'm sitting in for Diane Rehm. And we're talking about Puerto Rico. So we have some emails here. And I like this one. It's a little bit long. She says, "This is Maureen," and I'm not sure where you are, Maureen, but it says, "I'm surprised there's been no discussion about Wall Street involvement. Over and over again investment bankers sat down with Puerto Rican officials and said, I can solve your problem, sign these documents and we'll issue the bonds. The bonds were underwritten. The ratings agencies rated them. And yet they were in default."
HINOJOSASounds to me, I'm just interjecting, a little bit like mortgage crisis here. "I understand," she says, "a resolution is complicated. Puerto Rico is getting," in her words, "behind her and behind her, as higher earnings workers leaves. The day of reckoning has come, but let's not leave out the role of Wall Street." So who wants to jump in on the role of Wall Street?
ALBERTSWell, you know, I don't want to be perceived as a defender of Wall Street, per se, but, you know, we have to recognize that municipal financing is critical, not just to Puerto Rico, but to everywhere. I mean, roads, bridges, buildings require municipal financing. And so one of the things that has got to be considered here is what is the effect more generally if you simply look at this debt and say, well, you know, people are suffering, and they are suffering. And we have to be mindful of this, but it should be Wall Street that should absorb all of the hit here.
ALBERTSRemember in municipal financing, a lot of the people who hold the underlying debt are small investors. They're individuals.
HINOJOSAIs that the case in terms of this Puerto Rican -- like, who owns the debt?
ALBERTSYou know, a lot of the debt has traded, so at this point you can see a lot of institutional investors, but there's also a second level of debt which is the insurers, which are the monolines. And they are the ones who have been probably the strongest opponents to bankruptcy being filed, because they're ultimately the ones who would be on the hook for a large portion of this debt. Remember, there's $70 billion worth of debt. 15 billion is insured by the monolines, but a lot of it is what we call general obligation debt, which is the -- it's constitutionally guaranteed.
HINOJOSAGretchen, when you hear all of these numbers, like, I imagine that some people are just saying, oh, my God, it sounds so confusing. How do you even begin to tackle this? What's going on for you as you hear this?
SIERRA-ZORITAWell, I just saw "The Big Short," and if Michael Lewis is listening to us, please come to Puerto Rico and write a story for Vanity Fair, you know, because I think Puerto Rico is Michael Lewis worthy in terms of we need a book. But what's going on here, there's a lot of talk of Wall Street. There's a lot of truth to it. But we have to make the distinctions. We have investors, municipal investors that are long-term investors that have been doing their job in Puerto Rico as they have come into our markets, and then we have the speculators, the vulture funds, the people that we're objecting to now.
SIERRA-ZORITASo there's two types of -- there's two categories of investors here. And the ones that create a lot of resentment and hostilities are the ones that are coming in a speculative manner to make money out of this tragedy. The other thing that needs to be noted is that, yes, there's a (word?) alliance, yes, there's bond holders, there's all these people, but there are actual mom and pop people at the end of these bonds. And they're not just mainland investors. They're Puerto Rican investors. There are many, many, many people in Puerto Rico who invested in these bonds, and they're hurting as well. And those are the houses that loans are not getting shut out.
SIERRA-ZORITAAnd one last thing, Maria, Puerto Ricans do not -- the Puerto Rican investment consumer does not have the same protections that the American ones do, so they are much -- they do not have the same ability to correct our situation. And so, you know, Elizabeth Warren has been very on top of Puerto Rico, and what's going on in Puerto Rico, and that's something that needs to be looked at. How is the Puerto Rican investor protected in this situation because they do not have the same protections?
HINOJOSASo, Frances, from Columbia University, again to remind people that Puerto Ricans are born American citizens, but they do not have the right to vote for president if they live on the island. If they move to the mainland, then they can vote. All of this in a lead-up to what is the role now of the Supreme Court regarding Puerto Rico? What could possibly -- how could the Supreme Court be tied to what's happening in Puerto Rico right now?
NEGRON-MUNTANERWell, one way is that the status of Puerto Rico, which is non-corporate territory, was the result of a series of Supreme Court cases that determine that these new territories would be treated differently, basically, than all other territories in the past. So technically speaking, the Supreme Court through any number of cases that can reach its bench could determine that that's unconstitutional and set Puerto Rico on the way to a different relationship to the United States. So that's one way that the Supreme Court can weigh in.
NEGRON-MUNTANERAnd other ways that the Supreme Court can weigh in is to address some of the inequities mentioned by Gretchen in terms of protection, another loss that facilitate the vulture funds from operating only in Puerto Rico, but elsewhere in the United States and beyond.
HINOJOSASo we're going to go to a caller now. A question that probably many of our listeners have. This is Peggy from Houston. Go ahead, Peggy.
PEGGYYes, thank you. This is Peggy. My first question is why did the U.S. government colonize Puerto Rico in the first place? And my second question is, if the U.S. government wants to ignore Puerto Rico, why not just let them go, let them be free, let them be sovereign?
HINOJOSAAll right. Gretchen, go ahead.
SIERRA-ZORITAActually they can do that. You know, Puerto Rico exists because of Congress and by the right of Congress. So if they let -- decided they wanted to let us go, they could do that. I do believe that a lot of -- a big percentage of people residing on the island would just move up here with their American citizenship. Why did you become part of the United States? It was the Spanish American War, and the Philippines, Guam and Puerto Rico were part of the booty, and that's how we landed in the United States.
SIERRA-ZORITAAnd during the Cold War we played -- well, World War II first, and then the Cold War, we played a huge role in so far as our strategic position in the Caribbean. And also we were seen as a model nation that was an example of what a noncommunist government capitalistic system could do for the rest of the world. And if I may say so at this time, it's a two-street. We have been fighting American war since we became part of the union as a territory. Puerto Rican soldiers have been there all along. So it's not a free ride for us, whatever. We do consider ourselves to be part of the union in this matter. And it was not a one-way street. I just wanted to mention that.
HINOJOSAYeah, interestingly I've actually visited another territory called Guam.
SIERRA-ZORITAYeah, my god.
HINOJOSAAnd this is what the people of Guam said to me over and over when I was there. First they said, thank you for coming, and then they said, gosh, we wish we were Puerto Rico. And I said, why? There's a crisis in Puerto Rico. And they said, well, at least then the people on the mainland would know where we are. Just to give you a sense of how the people of Guam are seeing this. But I want to take another call. This is from Mike in Littlerock, Ark. Hi, Mike.
MIKEHello, how are you all today?
MIKEI had a quick statement, I guess, or comment, and a question, both. Puerto Rico to me seems like they've missed the boat on using what they have to their advantage. They're a Caribbean island. They have beaches. They have sunshine. They have a lot of things. And American tourism would be a great boom to there. I don't understand why there hasn't been more investment on that end, more promotion of Puerto Rico as a vacation spot.
HINOJOSAThank you, Mike. We'll address that. So Mike says it's a great island, tourism should be able to solve this problem. And you say, who wants to jump in?
NEGRON-MUNTANERSure. I mean, I think one of the reasons that Puerto Rico has kind of fallen behind, if you compare over the last few decades, Puerto Rico is somewhat ahead of other islands and infrastructure for tourism, but over time other islands like Jamaica and Dominican Republic have surpassed or got parody with Puerto Rico in that realm. So what are some of the problems? Some of the problems is that it's expensive to operate in Puerto Rico. And some of that higher cost has to do with some of the things that have been mentioned already. In addition to the things that have been mentioned already, like Merchant Marine and the cost of living and the cost of products and the cost of labor, there's also the issue of energy.
NEGRON-MUNTANERPuerto Rico pays an extraordinarily high amount of money for electricity that also has an impact on the development of tourism. And just to give you a perspective on that, only 1 percent of the energy that's used in Puerto Rico is renewable energy. Most of it is oil. So if you add up all the challenges and obstacles to development in Puerto Rico or to making the economy more viable, more flexible, more open to investment and expansion, you realize some of the reasons why Puerto Rico strength like tourism, or potential strength like tourism have not developed fully as they could.
HINOJOSASo when you say, Frances, when you say that the U.S. government hasn't wanted to resolve the situation of Puerto Rico, what do you mean when you say they just haven't wanted to resolve it?
NEGRON-MUNTANERWell, I think if you look at -- and when I study Puerto Rico, I study it not in small increments. I study it in long periods of time. So if you look over the 20th century into the 21st century, you'll see that the U.S. has largely favored status quo unincorporated territory doctrine by various means. So, for instance, at the beginning when the U.S. invaded Puerto Rico, there was actually a broad consensus among Puerto Ricans that they wanted to be a state of the United States. So there must've been a moment where you could have created a path to statehood, because there was pretty large consensus around that option.
NEGRON-MUNTANERLater there was greater consensus for independence, as the economic and political model wasn't working in the '30s. And now you have an increasing number of people that favor statehood or at least change from the unincorporated territory. The majority of people understand right now that this doesn't work. Yet U.S. Congress has never approved any legislation for binding plebiscite to resolve the status.
HINOJOSASo, Gretchen, are you pointing the finger at Congress and saying, you need to act? And is that realistic any time soon?
SIERRA-ZORITAI think Congress -- I mean, it's hard to answer this question without putting some of the responsibility on Puerto Rican people who have not made up their mind on this. However, they have never been given the option to make up their mind on a significant way. You could have ten more plebiscites and nothing would happen. At some point Congress has to say, okay, we're going to give you the option to make this a binding plebiscite, go for it. Every single presidential candidate that comes to Puerto Rico, either in primaries or when they're actually during the election period, has promised to support Puerto Rico's right to self-determination. And yet nobody is willing to push the issue into Congress in a significant way.
HINOJOSAWell, President Barack Obama has said that Puerto Rico -- coming up with a legislative solution to the island's debt crisis is a top priority this year. So he's saying he wants to resolve this, but you're saying that doesn't -- that this is...
SIERRA-ZORITAI personally think that prior to this issue of the status, which you're talking about right now with statehood versus whatever, a change in status, I think you need to address the fiscal and economic situation first. Whether you want to be an independent island or a state, you need to correct that situation. You will not be either until you correct that situation. So, to me, that is top priority among all others. I was just talking historically.
HINOJOSARight. And a sense of a timeline? I mean, are you saying...
HINOJOSAYesterday. We're talking about...
NEGRON-MUNTANERI just want to say that although I agree that this is not the moment to solve the status when there's a crisis, necessarily, I do think that a lot of elements that go with the unincorporated territory are affecting us, whether you move towards statehood or independence, I think the basic framework of having subordinated political entities that are in some ways punished in all kinds of ways, in the sense of resources, in the sense of legal options and mechanisms, is somewhat urgent to address.
NEGRON-MUNTANERAnd I guess to the original question that Maureen had that had to do with why don't we just let it go...
HINOJOSAOne second, Frances.
HINOJOSALet me just -- I do need to let everybody know that this is "The Diane Rehm Show." And my name is Maria Hinojosa. Thanks for listening. Go ahead, Frances. You can continue with your thought.
NEGRON-MUNTANEROh, yeah, I just want to say just a small point about what Gretchen was saying, that in the sense that why doesn't the U.S. just let it go? Well, I think statehood represents a challenging idea to some people in Congress, particularly the Republican party is very concerned that Puerto Rico would be a Democratic state and swing the elections for at least 100 years. And I think there's also reluctance to let go of a territory, just on principle, even if the territory's no longer serving the same needs that it did at the beginning of the 20th century where it was very important for military purposes.
HINOJOSAAll right. Let me bring in a caller from Florida. This is Alberto. Alberto, go ahead.
ALBERTOYes. Good morning. Thanks for taking the call. I was thinking on the one topic that I haven't heard yet and it's the responsibility of the local government as well. And the local government has undertaken many, many projects knowing that they cannot pay for them. For example, the Tren Urbano, the urban train, the mass transit system. It was incredibly expensive, et cetera, et cetera. And the way the politicians live in an opulent form, and this is not necessarily partisan. If you look from 1968 when Luis Munoz Marin finally left, from '68 'til now, the politicians have been increasingly corrupt. And I think that has taken a toll in the island's economy as well.
HINOJOSAThank you, Alberto. Finger pointing, what do you say to that, Gretchen?
SIERRA-ZORITAI could point fingers at everybody, and it's not just -- it's a political class. I mean, I think part of -- you know, this is a country that developed very fast in 100 years' time, you know, over the 20th century, the American century, and part of development is civic development. And I think there's still some catching up to do on how do we divorce our personal interests from those of the country? I think there's a great need in Puerto Rico for more oversight institutions. Within Puerto Rico, not from the federal government. Research capacity, analytical capacity, dissemination information.
SIERRA-ZORITAPart of the problem is we don't have the actual facts of what is going on. We don't have the audit capacity. All the checks and mechanisms that you see in the United States with local and federal government to see what's going on and disseminate information and so forth, they're not in Puerto Rico.
HINOJOSAAnd, Barry Bosworth with the Brookings Institution, you were saying that part of this has to do with the fact that the mainland sees Puerto Rico as something foreign, in that that mentality kind of seeps in, in the sense of it may not affect us after all.
BOSWORTHWell, I don't think that this issue of status in Puerto Rico, from my perspective, changes the economic problem. I'm interested in the economic problem. The fact that people don't have any jobs and incomes are very low, and they're leaving for that reason, it's going to be true whether Puerto Rico was a state or not. I doubt myself that the state -- that they can afford to be a state, because incomes are so low. They're so much worse off than Mississippi, for example, which is the poorest U.S. state.
BOSWORTHSo I'm worried that they just couldn't handle the cost of being a state. Remember, if they became a state, they'd have to pay federal income taxes. Right now if you live on the island half the year, you do not have to pay federal income taxes. That's the reason for a lot of opposition on the island to becoming a state. As opposed to the current commonwealth status. There's almost no support for becoming an independent country. It used to be high, but in the recent plebiscites and things like that, very few people want that option, because they would have to give up their American citizenship.
HINOJOSAIt is complicated. We have about 30 seconds. Frances, do you want to jump in as to a sense of a timeline of when this might be resolved in your view?
NEGRON-MUNTANERWell, I think one of the startling aspects of this process has been how slow, at least in my view, how slow the response from the U.S. has been. So I think one recommendation or one urgent matter is to move the resolution of addressing the crisis along, not postpone it any further, and put as many tools in the box as possible so we can move forward.
HINOJOSAThank you so much for speaking about Puerto Rico. That was Frances Negron from Columbia University, Gretchen Sierra-Zorita, Barry Bosworth and Sam Alberts. You've been listening to "The Diane Rehm Show." I'm Maria Hinojosa. And thanks so much for listening.
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