Puerto Rico is still basking in the glory of Monica Puig’s gold medal win in tennis at the Olympics in Brazil. She is the first Olympic gold medal winner in any sport for the island commonwealth.
Unfortunately, Puig’s victory is where the good news ends for the island. Regular readers of this blog know that Puerto Rico and its people are being crushed under the weight of its massive public debt.
The New York Times recent article on the desperate condition of Puerto Rico’s finances and decaying social fabric shows the tragedy that is Puerto Rico today.
A new law passed by Congress this summer and signed into law by President Obama creates an Independent Control Board to help Puerto Rico restructure its $72 billion debt, which is in default.
The board of four Republicans and three Democrats will try to deal with the U.S. territory’s budget and impose austerity measures similar to those that the citizens of debtor nation Greece protested in 2010 when austerity measures were introduced as part of the country’s bailout by Europe and the International Monetary Fund.
Puerto Rico’s “similarities with Greece are uncanny: a sunny vacation paradise that suddenly goes bust, a huge debt taken out in a currency — the euro, the dollar — that’s too strong for the local economy,” writes Mary Williams Walsh of the Times. “Both crises have elicited long debates about what went wrong, whose fault it was and how to respond. Austerity? A bailout? Something else?
“While the debates drag on, things get worse on the ground,” according to Walsh’s analysis.
Puerto Ricans revile the powers of the new Control Board, which many call a “junta,” according to Walsh. That’s a loaded term in the history of Latin American politics which refers to a dictatorship whereby a political or military group takes control of a country by force.
Walsh cites an array of problems facing Puerto Rico, including: a serious shortage of doctors to deal with the maladies of 3.5 million residents; a Zika outbreak; empty homes alongside federally subsidized public housing; and millions of dollars from Washington to subsidize the rent on apartments in housing projects. Many of the working poor simply can’t afford the rent, while others are failing to report income and scamming the housing authority and utilities.
While local taxes are skyrocketing, a shocking one-third of Puerto Rico’s economy is working off the books and lying about income in order to get more money from Washington. Off the books income means that some renters in Puerto Rico’s public housing stiff the Electric Power Authority, which could desperately use the money, according to Walsh.
The social fabric of the island is being ripped apart.
“The housing projects were built to house the working poor but over time they have cultivated a beat-the-system culture, in which working off the books and lying about your income means getting more money from Washington,” Walsh reports.
“I have all these people around me who don’t pay anything,” says a teacher who lives in the projects and is in despair of the culture around her family. “They just hang out.”
With a crumbling infrastructure and its public utility PREPA $9 billion in debt, not to mention a brain drain and population exodus to the mainland United States, Puerto Rico has enormous problems.
“No one knows yet how intrusive federal oversight will be” Walsh writes.” Some expect a destructive clash of cultures. A majority of the seven-member board will be Republican; Puerto Rico’s current government is aligned with the Democrats. Will things get worse before they get better? How much worse? Will they ever get better?”
Investors holding UBS issued Puerto Rico bond closed end funds watch their nest eggs crumble by the week.
It appears that the new seven-person Control Board has bigger challenges than even Monica Puig faced.
Zamansky LLC are securities and investment fraud attorneys representing investors in federal and state litigation against financial institutions. For more information about Zamansky LLC, please visit http://www.zamansky.com.