The spirit of George Orwell is preparing to visit, and take up residence, on the island of Puerto Rico. Appropriately enough, it all began in 1984… when the US Congress abruptly and quietly withdrew the territory from the coverage of US bankruptcy laws. In true Orwellian fashion, no one—not even the legislators themselves—knows how or why this exclusion took place.
Now, 32 years later, that same US Congress, the Puerto Rican government, and the island’s creditors are feverishly negotiating to resolve the public debt of Puerto Rico, which has risen to an unprecedented level of $72 billion. The Commonwealth government has offered its own debt restructuring plan, declared a state of fiscal emergency, and announced a debt-repayment moratorium—but all to no avail. Nothing has been settled.
To resolve this stalemate, a Financial Control Authority created in Washington and operated from Wall Street could soon become the de facto insular government—with unbridled powers that would turn most dictators green with envy. With a final Orwellian flourish, the congressional bill creating this authority is known as PROMESA, which is Spanish for “promise.”
But the promise of this bill can only be gauged through the cool prism of history.
The US Liberates Puerto Rico—Along With Its Land and Currency
The United States “liberated” Puerto Rico from Spain in 1898. Within 12 years, the United States had also liberated its farmland, with an agribusiness model that converted a diversified island harvest (coffee, sugarcane, tobacco, tropical fruit) into a one-crop, cash-cow economy… that of sugarcane. The US sugarcane plantations were rapidly consolidated into enormous centrales, and four centrales alone—United Porto Rico Sugar, Fajardo, Aguirre, South Porto Rico Sugar—controlled 160,000 acres of Puerto Rican farmland. As early as 1910, 45 centrales were already producing 98 percent of the island’s sugar. These centrales also owned the insular postal system, the entire coastal railroad, and the San Juan international seaport. The very first US-appointed governor of Puerto Rico, Charles Herbert Allen, leveraged his tenure on the island into the presidency of the American Sugar Refining Company, which today is known as Domino Sugar.
In 1900, the United States also devalued the island’s currency by 40 percent and paid such low wages that AFL-CIO President Samuel Gompers declared, after touring the island in 1904, “In all my life I have never witnessed such misery, sickness and suffering.”
In 1920, Section 27 of the US Merchant Marine Act (a.k.a. the Jones Act) rigged the entire shipping industry in Puerto Rico and raised the price of every import onto the island (food, oil, automobiles, clothing, electronics) by 15–20 percent. As recently as 2005, automobile prices were 30–40 percent higher in Puerto Rico than on the US mainland. Some products, particularly unprocessed food items, cost twice as much in Puerto Rico as in, for example, neighboring US Virgin Island. The price extortion continues to this day, and it is strangling the economy of Puerto Rico.