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Home>Puerto Rico's debt stands in the way of recovery from hurricanes and austerity

Puerto Rico's debt stands in the way of recovery from hurricanes and austerity

Puerto Rico's debt stands in the way of recovery from hurricanes and austerity

10/05/2017

By Jake Johnston

Trump is right: The island's debt will have to be restructured

"We're going to have to wipe that out," Donald Trump said Tuesday about Puerto Rico's massive debt load. Though White House officials had walked the comments back on Wednesday, (https://www.washingtonpost.com/news/wonk/wp/2017/10/04/mulvaney-quickly-walks-back-trump-vow-to-wipe-out-puerto-rico-debt/?utm_term=.0dfd20b6a7f8) the paper towel Pop-A-Shot president (http://www.cnn.com/2017/10/03/politics/donald-trump-paper-towels-puerto-rico/index.html) opened a discussion far too few politicians have been willing to take on.

We may not be able to trust Trump's word, but anyone who cares about Puerto Rico's recovery should be trying to hold him to his word.

Puerto Ricans have already suffered through more than a lost decade, (http://cepr.net/publications/reports/life-after-debt-in-puerto-rico-how-many-more-lost-decades) with zero economic growth. Unemployment is over 11%, and about half the country is in poverty. The government, handicapped by a colonial legacy of unequal treatment and policy decisions made in Washington, has borrowed in order to _-- quite literally --_ keep the lights on. In 2016, with Puerto Rico unable to continue servicing its $74 billion debt, and blocked from traditional bankruptcy proceedings by its "special" political status, Congress passed legislation in an attempt to address the crisis.

PROMESA, as the legislation is known, put Puerto Rico's finances in the hands of a federally appointed junta that effectively exercises veto power over the budget and major expenditures of the government. Now, Puerto Rico finds itself bogged down in court hearings with its creditors in bankruptcy-like proceedings outlined in the legislation.

Even before the hurricanes, this process was leading Puerto Rico down the path to another lost decade, or more (https://www.nytimes.com/2017/08/17/opinion/puerto-rico-economy-austerity.html). The junta running the budget has attempted to squeeze every penny out of the economy, pushing harsh austerity policies on the American citizens of Puerto Rico. But according to their own estimates, even after a decade of further misery-inducing policies, just $7.9 billion would be freed up to pay back bondholders. Tack on a tens-of-billions-of-dollars-relief-and-reconstruction effort and the writing is on the wall: Puerto Rico's debt is not getting paid back.

The vulture funds have been hovering over Puerto Rican debt for years, scooping up the distressed assets and angling for a big payday (https://theintercept.com/2017/10/03/we-can-finally-identify-one-of-the-largest-holders-of-puerto-rican-debt/)when, so they thought, Puerto Rico would be legally compelled to make them whole.

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