It has been just over a year since Hurricane Maria hit Puerto Rico, completely changing the lives of millions. If Puerto Rico had a strong economy and an efficient government, the impact of the hurricane would have been minimal. But years of austerity measures and colonial mismanagement meant the archipelago was unprepared. The huge devastation and death brought by the hurricane were not due to a natural disaster – they were the consequences of a political one.
It has also been two years since the US Congress enacted the Puerto Rico Oversight, Management, Economic and Stability Act (PROMESA – a cynical word play because it means ‘promise’ in Spanish). PROMESA basically imposed itself over the 1952 Puerto Rico constitution, shattering all remaining illusions about who is really in charge. It has fulfilled its promise for bondholders (mostly hedge funds and mutual funds), implementing disastrous austerity measures through the Oversight Board to restructure a gigantic debt that hasn’t been audited.
The Public Accountability Initiative & LittleSis has been researching some of Puerto Rico’s debt related issues. Here’s an update on some of our recent work:
- We wrote a report that our friends at Hedge Clippers recently published, entitled the The Golden Revolving Door, which examines the recent GDB restructuring agreement between the government, the Oversight Board, the hedge funds, the credit unions, and the municipalities. The report uncovers the existence of the legal releases for GDB officials from possible legal claims tied to the creation and perpetuation of the debt. For more than six decades, the GDB was the public bank that served as the financial advisor and fiscal agent for the government. It was in charge of authorizing and overseeing all bond emissions. Because of this, the GDB is a fundamental institution for understanding Puerto Rico’s debt crisis. Its officials were responsible for the debt creation that now besets the country. The report explains in depth all the details of the legal releases. It also mentions some of the revolving door officials that will benefit from this immunity. Finally, it describes the weak repayment source that holds the restructuring agreement, meaning more money for bondholders and less for essential services for the population.
- The Intercept also has been doing some great work on Puerto Rico. Recently, using data provided by LittleSis, it published an article by Kate Aronoff that summarizes hedge fund profits over the past year. The article, “Vulture Funds Stand to Make Millions in Wake of Hurricane Maria,” discusses the huge profits that hedge funds are making as a consequence of the restructuring deals that the government and the Oversight Board are making. In particular, it examines the agreement of COFINA (Spanish acronym for Urgent Interest Fund Corporation, or simply Sales Tax Financing Corporation) and the increasing hedge fund investments in COFINA bonds after Maria. If the agreement is approved by Judge Laura Taylor Swain, it means Puerto Rico will be returning $33 billion to creditors on a principal of just $17.7 billion. Some hedge funds will have gains between 100% and 150%. The repayment source of all of this is a 11.5% sales tax (the highest in the US), a draconian regressive tax that significantly diminishes the residents purchasing power. The article also gives a very brief summary of Puerto Rico’s recent economic history, its lack of sovereignty, and the Oversight Board’s numerous conflicts of interest.
It’s also worth highlighting another significant debt related development in Puerto Rico. A consensus demand among the social movements in Puerto Rico is to have an audit of the debt. Of course, the government and the Oversight Board have put up strong barriers against this. In 2017, Governor Rosselló disbanded the Commission for the Comprehensive Audit of Puerto Rico’s Public Credit created by law two years earlier. The Oversight Board has put up a lot of resistance against motions for independent investigations by the Unsecured Creditors Committee in the Title III cases in the Federal Court. To respond to these petitions the Oversight Board decided to contract disputes and investigations firm Kobre & Kim to review how Puerto Rico’s debt was created.
What Kobre & Kim produced was not an audit of the debt but a general report that summarizes the key events that were crucial to the creation of the debt. The 600+ page document took over a year to put together, but it doesn’t offer much towards justice for Puerto Rico. For example, it does not identify officials, public or private, who are guilty of wrongdoings. Ironically, one of Governor Rosselló’s arguments to disband the audit commission was that he didn’t want to waste $2 or $3 million on an audit – but the Kobre & Kim Report cost $16 million, all paid by Puerto Rico’s residents through their taxes.
There is clearly a lot of work still to be done by researchers and organizers who want to bring transparency to the power and profiteers behind the debt crisis and seek justice for Puerto Rico. Stay tuned for further updates on the situation in Puerto Rico from LittleSis and our allies.