For years, Puerto Rico borrowed money in order to pay for even the most basic services like school maintenance and salaries for teachers and police officers.
John Mudd, a lawyer who represents several local businesses and agencies in Puerto Rico’s current bankruptcy case, said that this kind of borrowing is “why we’re in the mess we are in right now.”
Puerto Rico’s situation, however, is more complicated than a bad case of overspending. Many believe the United States government shares some of the blame. Natasha Bannan, a lawyer with the civil rights group Latino Justice, said Puerto Rico has been held back because it is a United States territory.
“For 120 years, Puerto Rico has been a colony. They've had absolutely no autonomy to decide things like their economic vision and have control and to be able to exert that control over their own economy,” Bannan said.
Many trace the roots of Puerto Rico’s recent economic slide to 1996, when Congress killed a tax break that encouraged United States manufacturers to build plants on the island. To keep the government afloat, successive administrations turned to Wall Street to fill the gap. Bankers invented ever more complicated — and expensive — ways for Puerto Rico to borrow money.
Carlos Cuevas, a bankruptcy attorney who sits on the Puerto Rico Task Force at the New York City Bar Association, said that by 2014 you could make a compelling argument that Puerto Rico was “simply a Ponzi scheme,” in which officials borrowed more and more to pay back earlier debt.
Puerto Rican bonds were especially appealing to investors because they are exempt from federal, state, and local taxes. Investors all across the United States eagerly snapped up bonds. Puerto Rico had bonds for everything.
There were bonds backed by sales tax, highway tolls and water bills. Puerto Rico even has bonds backed by rum.
For a while, it worked: politicians were re-elected and the investment banks who helped the government sell all that debt made a fortune.
When the bubble finally burst, in 2015, Puerto Rico owed more than $20,000 for every man, woman and child on the island — four times the average elsewhere in the United States.
Elías Gutiérrez, a professor of economic planning at the University of Puerto Rico, said he remembers that moment well. “Like all bubbles in our capitalistic system, it exploded,” he said.
After years of assurances that its bonds were safe, and that many were even guaranteed by the Puerto Rican Constitution, it was a bombshell that roiled the country and the bond market on Wall Street.
For Gutiérrez, the shock was personal. As an economist, he had been warning that Puerto Rico was on an unsustainable path for years. But even knowing that, he didn’t foresee how bad it would become. So, like many middle class Puerto Ricans, he put a big chunk of his own savings into government bonds.
“I bought what my broker said that was good," he told WNYC. "My mind as an economist told me this is not going to work. But I still believed it. I don’t know why."
Gutiérrez was forced to sell most of his bonds for a fraction of what he originally paid for them. Now, at 75, he doesn’t know when he will be able to retire.
While older Puerto Ricans like Gutiérrez contemplate diminished retirements, their children and grandchildren fear they won’t be able to find jobs, or to make lives for themselves on the island they call home.
Vera Carothers contributed reporting to the series; It was produced in partnership with Latino USA.
Puerto Rico: The Future of Debt is supported in part by The Jacob and Valeria Langeloth Foundation, the Park Foundation, and Chasing the Dream, a WNET initiative on poverty, jobs and economic opportunity in America. Additional support is provided by the Corporation for Public Broadcasting as part of a collaboration between APM Reports, KCUR in Kansas City, KPCC in Southern California, WABE in Atlanta, and WNYC.
The series is also supported by the McGraw Center for Business Journalism at the CUNY Graduate School of Journalism.