The Puerto Rican Debt Narrative

BROOKE GLADSTONE:  This is On the Media. I'm Brooke Gladstone.

BOB GARFIELD:  And I’m Bob Garfield. This week, yet another shoe dropped in Puerto Rico's debt crisis.

MALE CORRESPONDENT:  Puerto Rico has defaulted on a $422 million bond payment that was due today. Its officials warned the US territory’s debt crisis could soon worsen without the help of Congress.

MALE CORRESPONDENT:  Today’s missed payment is the biggest yet in a series of defaults by that island. Puerto Rico owes a staggering $72 billion.

FEMALE CORRESPONDENT:  Puerto Rico's governor says the government can’t pay the bonds without cutting essential services. Nearly all the bonds are held by US hedge funds and mutual funds. Puerto Rico's been in a recession for 10 years.

MALE CORRESPONDENT:  Puerto Ricans are leaving the island at a record rate. New research shows that San Juan, the island’s largest city, lost 40,000 people, or 10 percent of its population, since 2010. Among native Puerto Ricans, most said they left for job or family reasons.

BOB GARFIELD:  Up until the 80s, Puerto Rico's municipalities could declare Chapter 9 bankruptcy and restructure their debt, like, say, Detroit. But due to an obscure and inexplicable loophole written in 1984, that's no longer an option. So the debt crisis is complicated and a national ad campaign is further muddying the waters.

 [CFIF ANTI-BAILOUT AD CLIP]:

MALE ANNOUNCER:  After years of wild overspending, Puerto Rico is out of money. Who will bail out Puerto Rico? Washington says you will. Congress wants to change the rules to grant Puerto Rico unprecedented bankruptcy protection called Super Chapter 9. Tell Congress stop the Washington bailout of Puerto Rico.

 [END CLIP]

BOB GARFIELD:  The ad is made by a group called the Center for Individual Freedom, which is targeting members of Congress who seem open to allowing Puerto Rico to negotiate its debt. Watchdogs don’t know who's behind the nearly $2 million ad buy, but HBO's John Oliver recently had a guess.

 [CLIP]:

JOHN OLIVER:  They are a dark money group, so it’s impossible to say where that money came from. Hedge funds. [COUGHING] Hedge funds. Hedge funds gave them the money. It’s, it’s impossible to say.

 [AUDIENCE APPLAUSE]

Hedge funds. Impossible.

 [END CLIP]

BOB GARFIELD:  And the reference to Puerto Rico's years of, quote, “wild overspending” ignores the reality that its debt isn't entirely of its own making. The message that Puerto Rico should pull itself up by its own bootstraps ignores the fact that Congress has had control of those bootstraps for 118 years.

Harry Franqui-Rivera is a historian and researcher with The Center for Puerto Rican Studies at the City University of New York. Harry, welcome to On the Media.

HARRY FRANQUI-RIVERA:  Thanks for having me, Bob.

BOB GARFIELD:  Apart from the factual errors in that ad, suggesting that Puerto Rico somehow is in control [LAUGHS] of its own destiny, you actually see a different problem with the message it's trying to convey.

HARRY FRANQUI-RIVERA:  Yeah, it actually portrays Puerto Ricans as alien, as foreigners. It is ironic because Puerto Ricans are US citizens. Almost 5 million Puerto Ricans who live in the United States pay all kinds of taxes, and Puerto Ricans on the island, they don’t pay federal income tax but they pay all kind of taxes, including Medicaid and Medicare, for which they are not fully reimbursed.

BOB GARFIELD:  And it isn't just this advertisement. This week, for example, there was an editorial in the Wall Street Journal titled, “Puerto Rico's Debt Portent:  The refugee exodus builds and will add to the U.S. dole,” portraying them as kind of invaders from within, parasites on our economy and way of life. But they’re citizens [LAUGHS] and - and, as you say, taxpayers. But the refugee assertion is turning out, actually, to be right because many people are abandoning the island.

HARRY FRANQUI-RIVERA:  Well, you know, ah, that article actually created a lot of talk among the Puerto Rican community, but this goes beyond opinion makers and the American public appreciation. This goes back to the way the United States decided to set up the political relationship between the United States and Puerto Rico and created this colonial framework in which Puerto Rico belongs to the United States but it’s not part of it. The message has always been, due to these plenary powers of Congress, that Puerto Ricans are incapable of governing themselves. And that was the case since 1901 to the present [LAUGHS] but, at the same time, they say they’re incapable but they should manage, which is something that is very contradictory.

BOB GARFIELD:  You know, history is always good for context, but in this particular case [LAUGHS] there is such a perfect storm that has converged, consisting of all these statutory quirks regarding Puerto Rico, since it became a US territory at the turn of the last century. We should review that history, otherwise there's no way to understand how we got to where we are today. So can we just go back to 1898, in the Spanish-American War?

HARRY FRANQUI-RIVERA:  Yeah, in 1898, as the United States intervened in the Cuban War of Independence, even before Puerto Rico was invaded, it had been decided that it was going to become part of the United States, in lieu of indemnities. If Spain would not pay indemnities, Puerto Rico would be that payment. The military considered Puerto Rico to be really important to defend the Caribbean on the project of the Panama Canal, which was really important for projecting American power. So Puerto Rico was not going to be free.

What happened afterwards is that a military government is established and it lasted for almost two years. Finally, in 1900, we had the Foraker Act that created the first civil government but which still reported to military authorities. Puerto Rico is going to be under the Department of War until the 1930s, when Franklin Delano Roosevelt passed Puerto Rico to the Department of the Interior. So you could say that Puerto Rico went from being a Spanish military colony to an American military colony.

BOB GARFIELD:  And was treated as a thing apart from the beginning. A Supreme Court case determined that [LAUGHS] Puerto Rico was, quote, “foreign in a domestic sense,” whatever in the world that was supposed to mean. But clearly, it was supposed to mean that it's a special case.

HARRY FRANQUI-RIVERA:  Yes, because the United States didn’t know what to do with it. Puerto Rico was not to be annexed. One of the main reasons supported by historians of Puerto Rico is that the United States was abhorred by the racial composition and the culture in Puerto Rico which was mostly dominated by Spanish-speaking Catholic people, and that didn’t sit well. But the island was necessary, so what to do? Let’s create a different category of the people of Puerto Rico, and that’s the unincorporated territory.

BOB GARFIELD:  And used Puerto Rico as kind of a plaything, to advance the United States’ economic interests, its military interests and political interests. One such piece of legislation was the Merchant Marine Act, which says that all goods in Puerto Rico must be exported from the United States. And what was the impact on Puerto Ricans?

HARRY FRANQUI-RIVERA:  Well, what it did is that it made imports and exports about 20 to 25 percent more expensive, so you can imagine what it will do to an island in which, when the United States got there, is an agrarian society. People don’t earn that much and, all of a sudden, everything becomes more expensive, and it continues to this day. Some experts have said that if there was an exception and Puerto Rico did not have to operate under that clause, well, first of all, commodities will be way cheaper and they may create between 30,000 to 50,000 jobs, which Puerto Rico desperately needs.

BOB GARFIELD:  At one point, the federal government decided to stimulate the economy by creating tax breaks for corporations who wanted to build factories there. And it worked really, really well, or at least so it seemed.

HARRY FRANQUI-RIVERA:  Well, this happened in the 1970s, when the Section 936 of the US Internal Revenue Code was designed, and specifically to attract mainland investors to Puerto Rico. Companies received as much of 70,000 a year in tax write-offs for each job created under Section 936. So you can see how attractive this is. It kind of worked because it did stimulate the economy. It created jobs, most of which were full-time and much better paid than what the average Puerto Rican could get anywhere. But these sections were created in the 1970s because of the Cold War. We continued to try to make Cuba fail and, on the other hand, Puerto Rico was portrayed as the pillar of the Caribbean, what would happen to your country if you align with the United States, with the West? So Puerto Rico could not fail.

 [CLIP]:

MALE ANNOUNCER:  As an example of an underdeveloped land that is going through an industrial revolution without violence and without Communism, Puerto Rico has been called a “showcase of America.” The growth of industry, agriculture and the tourist trade is raising the standard of living.

  [END CLIP]

BOB GARFIELD:  So the infusion of jobs into Puerto Rico was a kind of propaganda move to create a kind of Potemkin village to show the world, especially Cubans, what happens if you're aligned with the United States, as opposed to being aligned with the Soviet Union.

HARRY FRANQUI-RIVERA:  Exactly, we’re going to help Puerto Rico but there’s going to be something in return for the corporations and for our foreign policy, as well.

BOB GARFIELD:  So then two bad things happened to Puerto Rico. First, the Cold War ended and then the economic blowout of 2008. What happened to manufacturing jobs?

HARRY FRANQUI-RIVERA:  The 936 started to phase out. Puerto Rico started to lose manufacturing jobs, at first a few hundred, then thousands a year, finally tens of thousands of jobs were lost, and finally, by 2006, Puerto Rico is in a deep economic crisis, even before the United States gets into its recession, which has always been the case; Puerto Rico gets into a recession of its own before the mainland gets into it.

BOB GARFIELD:  But before we portray Puerto Rico only as a victim of the machinations of the mainland, it's not entirely blameless in this.

HARRY FRANQUI-RIVERA:  Yes, definitely there’s been mismanagement, waste, corruption and many bad decisions. Up to the end of the 1990s, Puerto Rico had been really good at paying its bonds, so when 936 was starting to be phased out, the government decided to borrow heavily to engage in public works and, and even in a universal healthcare system, thinking that somehow that would spark the economy. And the problem wasn’t apparent at first because there was a large tax base, as most of the 936 companies were still there. But, as they started to move away and unemployment rose, that combined with the borrowing, and that's how we got to this debt.

BOB GARFIELD:  And here we get to a pretty significant irony. We were talking before about comparing Puerto Rico to Cuba in the, the grasp of the evil empire. Now, Puerto Rico is in a freefall and Cuba is in its ascendancy. We’re restoring relations incrementally with the still-Communist island. It’s enjoying a – the attention of the US government and the goodwill, while our former poster child for capitalism is in a death spiral.

HARRY FRANQUI-RIVERA:  Cuba has always been more sexy than Puerto Rico, and this opening of Cuba is going to affect Puerto Rican tourism. It’s also going to affect American investment. And Puerto Rico in the shape it is, even though it has an impressive infrastructure, it's going to be hard for Puerto Rico to compete with Cuba. And, as a matter of fact, if you add to that the Zika virus, recently people are canceling the hotel reservations because it was announced that hundreds of thousands of Puerto Ricans may be affected with the Zika virus by the end of the year. So there’s going to be hard times for Puerto Rico. BOB GARFIELD:  So Congress had the opportunity to restore bankruptcy protection to the island, left town for a brief recess without acting. What is likely to happen next?

HARRY FRANQUI-RIVERA:  I think that Congress is going to continue to move slowly. I don't think that the Puerto Rican crisis is in the radar of many Congress people. Not even the Speaker of the House Ryan can get a consensus for the plan he presented, which fails to address many of the issues with Puerto Rico’s economy. And it actually installed an oversight board, which has been received with mixed feelings in Puerto Rico. It’s seen as colonialism, but a sector of Puerto Ricans would have it just to get something done.

BOB GARFIELD:  But there is one thing the island has going for it, and that's Lin-Manuel Miranda, the creator and star of the Broadway show “Hamilton” whose family is from Puerto Rico, and he is the public face of the crisis. He sang this on John Oliver’s show.

 [LAST WEEK TONIGHT CLIP]:

LIN-MANUEL MIRANDA: 

Paul Ryan, I’ll come sing Hamilton at your house

I’ll do-si-do with Pelosi,

I’ll wear my Hamilton blouse.

Our citizens are suffering,

stop the bleeding, stop the loss.

Help Puerto Rico, it’s just 100 miles across!

Thank you.

  [AUDIENCE CHEERS/APPLAUSE] [END CLIP]

BOB GARFIELD:  Is that going to help?

HARRY FRANQUI-RIVERA:  I think it might help. Even Speaker Ryan started to talk more about Puerto Rico.

 [CBS THIS MORNING CLIP]:

HOUSE SPEAKER PAUL RYAN:  I was just getting ready to watch Game of Thrones, which was the season premiere. So I turned it on early, and that was on. That guy came on the stage and starts throwing [LAUGHS] my name around, and that was very surreal.

CO-HOST CHARLIE ROSE:  He wants you to focus on Puerto Rico.

SPEAKER RYAN:  Yeah, so we are focused on Puerto Rico.

 [END CLIP]

HARRY FRANQUI-RIVERA:  The diaspora, that really organized it and put in their foot forward for Puerto Rico to reach out to Congress to make sure that people know about this and what is going on. But this crisis and the reluctance of Congress to deal with it has united Puerto Ricans on the island and with Puerto Ricans in the diaspora in a way that in my 44 years of life I’ve never seen before. So I think this is a really positive effect of the recession and of Congress’s reluctance to address it.

BOB GARFIELD:  Kind of like a family crisis can heal a poor marriage.

HARRY FRANQUI-RIVERA:  Exactly, it’s like a family crisis. And the numbers do show that Puerto Ricans are moving to key states, Florida, but also in Virginia, you know, Ohio, states that really crucial to decide the election. Puerto Ricans are going to be vital to deciding who is the president of the United States.

BOB GARFIELD:  What if we just build a wall?

HARRY FRANQUI-RIVERA:  [LAUGHS] Well, I guess the wall will come down, then it’s going to be used to float to Florida. I mean – [LAUGHS]

BOB GARFIELD:  [LAUGHS] Harry, thank you very, very much.

HARRY FRANQUI-RIVERA:  Thank you.

BOB GARFIELD:  Harry Franqui-Rivera is a historian and researcher with The Center for Puerto Rican studies at the City University of New York.

 [MUSIC UP & UNDER]

BROOKE GLADSTONE:  Coming up, nearly four decades after the Iranian revolution, you can be on the street of 70s Tehran and influence the action, inside a game.

 [1979 REVOLUTION:  BLACK FRIDAY CLIP]:

BABAK:  Why did you throw the rock, Reza? What are you, a Freedom Fighter now?

REZA:  I, I lost myself.

BABAK:  You’re here to observe and document, okay?

 [END CLIP]

BOB GARFIELD:  This is On the Media.