Puerto Rico is in worse shape than you think — and US bankers aren't helping
As a nation, we don't talk enough about Puerto Rico — an island just 1,200 miles away from Florida. And on Last Week Tonight, John Oliver shed light on the fact that the U.S. territory desperately needs a spotlight thrust on the devastating financial, education and health crisis currently taking place there.
And Hamilton star Lin-Manuel Miranda, at 19:13 minutes in, explains the crisis in Puerto Rico like you’ve never heard it before:
Even though, for decades, Puerto Rico has been marketed to U.S. citizens as “a beautiful vacation spot,” the island of 3.5 million people is facing a $70 billion public debt amid a 10-year financial crisis. The island is in such dire straits that 84,000 people left Puerto Rico last year to move to the U.S., more than 150 schools have been shuttered and sales taxes leaped from 7% to 11.5%.
“Puerto Rico is like the last Tower Records,” Oliver joked to break the tension. “Everything is overpriced, everyone has been laid off and there’s still a lot of Ricky Martin CDs."
Because Puerto Rico is a territory and not a state, it remains "foreign to the United States in a domestic sense." Oliver didn’t have any interest in settling the contentious topic of Puerto Rico statehood, but focused instead on how problematic it is that many state laws have loopholes on the island.
"Some good, many devastating," he added.
One law that created an abundance of wealth in Puerto Rico was Section 936, a tax break that was given to businesses to encourage them to set up shop in Puerto Rico instead of moving overseas. As a result, there was a boom in manufacturing on the island — Oliver even called it a "pharmaceutical paradise" where, among the manufacturing of other drugs, Viagra was created.
Unfortunately, Congress got rid of those tax breaks, phasing them out by 2006, and Puerto Rico lost half of its manufacturing jobs.
The U.S. then offered Puerto Rico municipal bonds (an IOU with interest) and people lined up for years to buy them because they were triple tax exempt. Since all that glitters is never gold, it turns out Wall Street loves these tax breaks and is making a fortune off them. Depending on how you invest, you may even be unknowingly profiting from Puerto Rico’s misfortune.
"You may own Puerto Rico bonds and not even know it," Oliver said.
Puerto Rico went a step further to entice Wall Street by deciding that paying certain stockholders would take precedence over paying for civil services that keep the island running. So now you have reports of power being cut to hospitals and one doctor a day leaving Puerto Rico — a frightening reality given the news that there are also 450 confirmed cases of Zika virus on the island.
When you-know-what hits the fan in the U.S. we have the option of authorizing Chapter 9 Bankruptcy — this isn't the case in Puerto Rico. And worse: no one knows why. An amendment was added to a U.S. law in 1984 that prevents Puerto Rico from declaring bankruptcy and "the crazy thing is, no one can say why it was written," Oliver said. There's, literally, no explanation why the late Senator Strom Thurmond inserted the amendment into the federal law and "singled out" Puerto Rico.
And that's not all, folks. Four years ago, in an attempt to create 50,000 jobs in 18 months, Puerto Rico exempted businesses and wealthy people from capital gains taxes. If I may quote Julia Roberts in Pretty Woman: "Big mistake. Big. Huge." The number of jobs they ultimately created? Just 5,800.
Because someone, somewhere is always getting richer when times are bad in other countries, hedge funds often invest in debt-ridden economies. Calling them "vulture funds," Oliver said Puerto Rico is their latest target. "If you’re alone in the desert and see vultures above you, your first thought is never, 'Oh thank God, the vultures have come to help,'" Oliver said.
There is one bright spot in all of this darkness: Congress is considering a bipartisan bill that would give Puerto Rico breathing room to collaborate with creditors. But television ads that Oliver said must have been paid for by hedge fund investors are already out and encouraging people to call congress and refuse to “bail out” Puerto Rico. And, as banks know very well, there's nothing Americans despise more than the B-word.
Instead of treating Puerto Rico like a country we can drop like a hat whenever it's inconvenient, Oliver agrees the humane thing to do is simply: "treat Puerto Rico like an island of American citizens whose fate is intertwined with ours."
Correction: Figure was recently adjusted to reflect the correct number of people who have left Puerto Rico for the United States.
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