Default and genocide loom over the Commonwealth of Puerto Rico. With its $70 billion in debt and inability to borrow money to fund its debt, the island has been left defenseless, the victim of what one local journalist characterized as a “colonial” policy imposed by the U.S. Federal Reserve and Treasury.
Since Puerto Rico’s Constitution protects investors above ordinary citizens, financial vultures are already salivating over Puerto Rico’s pension funds in the event of a bankruptcy. The government faces $37 billion in unfunded pension obligations.
Gov. Alejandro Garcia Padilla insists that default or bailout are not on the agenda, and that the government will pay its debts. But anything other than a Glass-Steagall solution and establishing a credit system to finance real development, will annihilate Puerto Rico’s impoverished population, on a scale far greater than what is envisioned for Detroit. Puerto Rico’s $70 billion in debt dwarfs Detroit’s $18 billion.
Puerto Rico is increasingly characterized by poverty and despair, as jobs have disappeared, U.S. corporations have pulled out, and anyone who can is leaving the island for the U.S. mainland. The island suffers some of the highest rates in the world of murder, drug addiction, alcoholism and school desertion. Barack Obama has sent an “economic advisory team” to “assist” Puerto Rico in managing its economic crisis, which critics say functions simply as a financial control board whose job is to put the island into receivership.
On Dec. 12, Moody’s rating agency put Puerto Rico’s municipal bonds and related securities officially on watch for a downgrade to below investment-grade, following similar action by the Fitch rating agency in November, Bloomberg News reported Dec. 13. The government’s access to the municipal bond market is already closing down, which, according to BlackRock Inc. representative Peter Hayes, leaves it with the choice of default, bailout or restructuring. Any one of these would would be the largest of its kind. The impact on the mainland’s already volatile municipal bond markets would be immediate. According to Bloomberg, three-quarters of municipal bond funds have some exposure to Puerto Rico’s bonds, and the worst performing muni bonds this year are those loaded up with Puerto Rico’s debt.