Wall Street's Solution to Puerto Rico Debt Crisis? Shutter Schools, Fire Workers
New report commissioned by bondholders and hedge fund managers calls for sweeping austerity measures
Hedge fund managers and bondholders are pressing the government of Puerto Rico to drive through a series of punishing austerity measures, including dramatic cuts to public education and workers' rights protections, to "solve" the crisis of debt and poverty gripping the Caribbean island.
A group representing $5.2 billion of debt held by 38 investment managers paid three former economists for the International Monetary Fund, who now are employed by the firm Centennial Group International, to devise policy recommendations in response to Governor Alejandro García Padilla's claim last month that Puerto Rico's $72 billion debt is "not payable."
Entitled For Puerto Rico, There is a Better Way, the report urges the government to increase tax collection and then use this money to pay back creditors while at the same time severely slashing public programs—particularly education—and privatizing assets and industries. Needless to say, the billionaire bondholders who commissioned the study have a direct financial interest in its findings.
Specifically, the report's authors call for the government to slash public education and health programs, including proposals to: "Reduce number of teachers to fit the size of the student population; Reduce subsidy to University of Puerto Rico; Cut excess Medicaid benefits."
The recommendations come despite the fact that Puerto Rico's government has already been rapidly defunding the education system, closing 100 schools in 2015 alone. Puerto Rico's teachers' unions have vigorously opposed attempts to drive through neoliberal education reforms and cuts, and in May, thousands of educators and students took to the streets and staged strikes to protest a proposed $166 million cut to the University of Puerto Rico's budget.
The study also recommends "structural reforms" to regulations and worker protections, including calls to: "Amend local labor laws regarding overtime, vacation time, mandatory bonuses, and others;" and changes that would "[m]ake welfare benefits consistent with local labor market conditions."
What's more, the report calls for taxpayers' money to be put towards "public private partnerships" to construct or operate buildings and ports.
Many argue that the logic of austerity and privatization represented in the report is actually much of what created the economic crisis in Puerto Rico—a U.S. territory in which over 13 percent of people are unemployed, 45 percent of people live below the poverty line, and residents are treated like second-class citizens of the United States.
"According to the neoliberal narrative, the rapidly intensifying economic crisis is an open and shut case: Puerto Rico, legally an unincorporated territory of the US, is caught in a debtor’s trap of borrowing to pay for essential operations," wrote journalist Ed Morales for Jacobin last month.
"But the real story is more complicated, and more connected to Puerto Rico’s colonial relationship with the US," Morales continued. "Over the years, the U.S. has treated Puerto Rico as a laboratory for population control, conducted naval war games on the island nation for possible Middle East interventions, and used it as a pre-NAFTA staging ground for corporate megastores to develop consumer bases and exploit low-wage labor."
Activist and scholar Vijay Prashad recently argued that the commonwealth's elite government also has a hand in the island's ongoing hardship through its embrace of an IMF agenda of privatization and cutbacks: "Garcia Padilla continues to use the word 'sacrifice' in his speeches. The question asked by Puerto Ricans is why such a word is only used against ordinary people and never against the bankers."