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“It’s a social crisis, an economic crisis” – the dimensions to Puerto Rico’s disaster

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Jack Barton

Jack Barton

"Hi Todd, thanks that's interesting. I..."
Todd Grotenhuis

Todd Grotenhuis

"My bias: I have a couple friends in P..."

U.S. President Donald Trump pledged support for relief and reconstruction efforts to Puerto Rico on September 29, following a cacophony of criticism that his administration wasn’t doing enough to help the hurricane-stricken U.S. territory.

Speaking at a meeting for the National Association of Manufacturers in Washington, Trump said: “We will not rest, however, until the people of Puerto Rico are safe.”

But the president also defended his administration’s response to the natural disaster.

“This is an island surrounded by water, big water, ocean water. We’re closely coordinated with the territorial and local governments, which are totally and unfortunately unable to handle this catastrophic crisis on their own, just totally unable to. The police and truck drivers are very substantially gone, they’re taking care of their families and largely unable to get involved, largely unable to help,” he said.

Hurricane Maria struck Puerto Rico on September 20 as a Category 4 Hurricane (see our coverage). The storm caused widespread damage and knocked out power, water and most communications for the island’s 3.4 million citizens.

The U.S. government has been criticised for its slow reaction in managing a huge relief effort.

While Maria and its aftermath have drawn attention to the U.S. territory, Puerto Rico’s plight is compounded by a long-term economic crisis and its status as a U.S. “incorporated territory” rather than a U.S. state.

Financial context

“It’s not only a debt crisis, but also a social crisis, an economic crisis,” says Gibran Alberto Cruz-Martinez, a Puerto Rican post-doctoral research fellow at the University of Agder in Norway.

Since the 1950s onwards, Puerto Rico’s economy has been based on a low-tax model, with a view to attracting businesses from the U.S. mainland, Cruz-Martinez tells WikiTribune.

“Still, every four years governments continue introducing more policies to reduce taxes, in order to attract wealthy investors,” says Cruz-Martinez.

In 2006, the Bush administration introduced regulations that meant money moved from Puerto Rico to the U.S. was subject to tax, undermining its tax haven model.

Since then, most macro-economic indicators for Puerto Rico have been consistently negative. Low growth, high unemployment and wage stagnation have led many Puerto Ricans to move to the U.S. mainland looking for jobs. Up to two percent of the island’s population has emigrated every year.

To address the financial shortfall, the government has been issuing debt – often at high levels of interest – that Cruz-Martinez describes as “completely unsustainable.”

Public court filings published earlier this year revealed that the island is currently creaking under $72 billion of debt.

Cruz-Martinez says because of the economic crisis, investment in electrical and water services, as well as in roads, dams and other major infrastructure, has been in decline for over a decade.

A report released in March 2017 by the Puerto Rican government supports Cruz-Martinez’s claim. It shows that the island’s investment in infrastructure as a percentage of gross domestic product (GDP) fell from 3.3 percent in 2000 to 1.4 percent in 2014. Between 2002 and 2014, that number never surpassed 2 percent.

In the U.S., the average investment in infrastructure as a percentage of GDP from 2008 to 2013 was 2.4 percent.

But in the Caribbean, a storm on the same scale as Hurricane Maria occurs roughly every 20 years, and smaller ones every four or five years.

When Maria hit, Puerto Rico’s infrastructure was particularly vulnerable. The hurricane destroyed the island’s electricity supply, which meant no power was available to operate its water supply.

Political context

Cruz-Martinez suggests many Puerto Ricans will see the roots of this vulnerability in the island’s status as a U.S. “colony.”

Puerto Rico’s economic crisis has led to deteriorating infrastructure conditions since 2006, but unlike U.S. states and municipalities, the U.S. territory has been barred from filing for bankruptcy.

Chapter 9 of the U.S. Bankruptcy Code is designed to give states and municipalities protection from creditors by creating a plan to resolve outstanding debt. However, it expressly bars Puerto Rico and the U.S. Virgin Islands from filing for bankruptcy.

Puerto Rico tried to create its own bankruptcy act, but the U.S. Supreme Court ruled last year that the law was “pre-empted” by the Bankruptcy Code.

In June 2016, former U.S. President Barack Obama signed the Puerto Rico Oversight Management and Economic Stability Act (PROMESA), placing the island’s government under the supervision of a New York-based oversight board.

The board has authority over the island’s budget and all economic decisions. In May, the board agreed to Governor Ricardo Rossello’s request to file for a process similar to bankruptcy, under Title III of PROMESA.

In its court filing, the Puerto Rican government said that the island was “at breaking point.”

Outside of the bankruptcy, Cruz-Martinez says that Puerto Rico’s political status is the “worst possible option.”

Phony aid and the Jones Act

In separate tweets, Cuba (since deleted) and Venezuela claim they offered technical assistance to aid in Puerto Rico’s recovery. Several reports suggest the island’s government cannot accept their aid due to travel restrictions imposed by the U.S. federal government on these countries.

But a U.S. State Department spokesperson for Western Hemisphere Affairs told WikiTribune: “The Department of State has not received formal offers of assistance from Cuba or Venezuela.”

The Jones Act, which President Trump temporarily waived on September 28, stipulates that only U.S.-built and operated ships can ferry supplies between U.S. ports, including to Puerto Rico. The U.S. Virgin Islands are the only exception.

Foreign vessels can transport supplies to the U.S. and its territories, but not among them. This logistical constraint increases the duties on many goods for Puerto Rican citizens.

The Jones Act’s temporary suspension means that relief supplies can now reach the island more easily, since they can be transported from continental U.S. ports to Puerto Rico by foreign vessels. But in the long-term, the act is one of the federal regulations that Puerto Ricans feel have hampered their island’s development.

 


Sources & References

Cruz-Martinez currently lives in the U.K. but his entire family live in Puerto Rico. He tells WikiTribune that he spoke to his mother last Friday, and was reassured that his family were safe. Donations for the relief effort can be made to the following local NGOs: Casa Pueblo de Adjuntas: www.casapueblo.org Taller Salud: http://www.tallersalud. com/ Fundación Comunitaria de Puerto Rico https://www.fcpr.org/ Proyecto ENLACE del Cano Martin Pena: www.martinpena.org

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United Kingdom
Jack Barton is a staff journalist at WikiTribune where he writes about international law, human rights and finance, whilst covering daily news. He was previously a senior reporter at Law Business Research and has experience covering law and international development, with credits in the Sunday Times, the New Indian Express, and New Statesman online among others. He has an LLM in Human Rights and worked on a UN-funded research project, looking at peace processes.

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18 January 2018

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    My bias: I have a couple friends in Puerto Rico, and I’ve been talking with them intermittently since the island lost power.

    A couple points: the incentives for the island meant that industries grew, and infrastructure was built to support them. Pharmaceuticals is a good example. When the incentives changed, much was pulled out, but these were not industries that left sites/equipment that were easy to “pivot” to new industries. Thus, rearranging the whole economy around new industries became a very difficult process.

    Since the incentives have changed, we have seen many professional and skilled citizens leaving the island for the mainland (for example Orlando and NYC). This has a further drain in that skilled workers are in lesser supply to deal with the problems that arise.

    It may also be interesting to point out the changes in the three major political movements (stay-the-same, independence, and statehood), as these events have pushed the issue.

    1. Rewrite

      Hi Todd, thanks that’s interesting. I was loath to get bogged down too much in historical reasons for Puerto Rico’s slump but am open to changes if you feel the piece is inaccurate without these details. I would also be interested in doing a more up-to-date piece on how the recovery is going, and perhaps whether it has been affected by the power play between the federal government, island government and oversight board. Would be interested in further thoughts or contributions.
      Best

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