Two and a half months after defaulting on part of its $73 billion in debt, President Barack Obama is asking Congress to give Puerto Rico the power to file for bankruptcy, so the U.S. Territory can cancel their debt and borrow more money.
A Puerto Rico delegation, led by Governor Alejandro García Padilla, and U.S. Treasury officials testified at a Senate Energy and Natural Affairs Committee on October 22.
Republicans complained that the officials’ presentation was confusing, because the numbers were out of date and failed to provide an understanding of the island’s balance sheet. But Democrat Presidential candidate Senator Bernie Sanders of Vermont said the he had heard some of the bonds at risk of default might have been issued illegally and perhaps could be torn up, according to a report by the New York Times.
Puerto Rican officials agreed that the island’s Constitution does require a balanced budget, but the ruling Popular Democratic Party (PDP) has been borrowing money to fund deficits for years by accounting for debt proceeds as a form of revenue.
Governor Padilla, who has difficulty speaking English, told Bloomberg last year that Puerto Rico had a constitutional and moral obligation to not default on the island’s debt. But he then led his PDP majority to pass a law giving a local court the power to cancel much, if not all, of the island’s bond debt.
Breitbart News reported on August 4 Puerto Rico officially defaulted on a $58 million debt payment by only paying $628,000. Governor Padilla complained the island was in a “death spiral,” because the economy has been shrinking at 6% annually, and only 1.2 million, or 32%, of the island’s 3.7 million inhabitants are employed.
Puerto Rico employment compares unfavorably to the 52 percent of Greeks currently working. One of Greece’s biggest problems is that 23 percent of the population is on “the dole”. But over 27 percent of the people of Puerto Rico USA are on welfare.
Greek politicians are blamed for trying to buy votes by spending 29 percent of the nation’s GDP on government “transfer payments” for disability, housing, family, old age, unemployment, and health benefits. But similar transfer payments in Puerto Rico amount to over 40 percent of GDP.
The Puerto Rican economy should be benefiting enormously from the fact that Commonwealth residents are exempt from paying U.S. federal income taxes, unless the income is earned outside of the island.
But a Popular Democratic Party-controlled Legislature made Spanish the official language for all schools and government use in 1991. Since about 86% of the island does not speak English in the home, poor language skills are the major impediment to relocating call centers and other U.S. service businesses to Puerto Rico.
The Puerto Rico Department of Education only requires that students receive 50 minutes of daily English instruction throughout their twelve years of schooling. The 2005-06 academic assessment data showed that 81% of the students in the Public School System had not developed the “basic” English language skills necessary to be able to use English in either oral or written discourse. Just 60 percent of the population over 25 years old has graduated from high school, compared to 80 percent for the U.S.
Unlike the municipal bonds that were almost exclusively held by rich people when Orange County, California and Detroit, Michigan filed for bankruptcy, a huge percentage of Puerto Rico’s municipal bonds are held by ordinary Puerto Ricans through crony investments by the island’s Popular Democratic Party controlled credit unions.
Any Puerto Rican government bankruptcy risks a Puerto Rican banking crisis that could result in huge losses for small savers.
Senators at the Committee hearing expressed serious frustration regarding the accuracy of the Obama Administration’s financial rescue package. Essentially, the plan would shovel money to the island by expanding federal cash support for Medicaid and other health care on the island, plus extend certain tax credits as transfer payments to Puerto Ricans who currently do not have enough income use them.
With health care already accounting for about 20 percent of the Puerto Rico’s economy, Republican Senators demanded specific details on how the new money would be spent.
Governor Padilla blamed vulture hedge funds for the island’s troubles and said it was “a misconception” that Puerto Rico was withholding critical financial information — a “red herring” being spread by “those with vested interests in seeing Congress defer taking action, so as to force Puerto Rico into a disorderly default,” according to the Times.