Hurricanes, Bankruptcy, and Austerity: Puerto Rican Workers Pay for Capitalist Crisis

Not yet recovered from the deadly destruction of Hurricane Maria in 2017, Puerto Rico has suffered yet another catastrophic blow. On Sunday, September 18, Hurricane Fiona ripped through the island before slamming into the Dominican Republic, causing devastating flooding and critically damaging the island’s water and power infrastructure. Days after the hurricane had moved on, a majority of Puerto Rico’s 3.1 million residents were still without power after an island-wide blackout. More than 1,200 people were staying in shelters after losing their homes to torrential rain and landslides, and 60% of the island remained without running water.

On September 18, Hurricane Fiona ripped through the island causing devastating flooding and critically damaging the island’s water and power infrastructure. / Image: NASA

The devastation in Fiona’s wake marks yet another chapter in Puerto Rico’s perpetual squeeze by US capitalism. It is compounded by decades of debt and economic crisis, poverty, and austerity measures that have deeply undermined the habitability of the island. As the effects of climate change intensify year after year, there is no way out of Puerto Rico’s impasse as long as the profit-driven system of capitalism continues to dominate the island.

A brief history of US capitalism’s plunder of Puerto Rico

For well over a century, Puerto Rico’s de facto colonial status has put it in a perfectly vulnerable position for exploitation by US capitalists. The island came under the control of the US government after the Spanish-American War. In 1917, Puerto Ricans became US citizens. But because the island is considered an “unincorporated territory” of the US, it is neither a sovereign nation nor a US state. As a result, Puerto Ricans cannot vote, do not pay federal income tax, and do not have political representation in Congress, aside from a non-voting representative.

As a colony, Puerto Rico was deemed strategically ripe for maximizing capitalist profits. The 1917 Jones-Shafroth Act, which granted US citizenship, also provided that Puerto Rican bonds were not subject to any federal, state, or local taxes. This was attractive for capitalists, which began to heavily invest in the Caribbean island.

There were also massive tax breaks granted in Puerto Rico, which made it even more attractive for capitalist leeches. Factories began to be built on the island, mostly for shoe and clothing manufacturing. In 1976, it was even written into the Internal Revenue Code that manufacturers did not have to pay taxes on profits made in Puerto Rico. Drug and pharmaceutical manufacturers swooped in. In 2018, it was reported that five of the world’s top 10 drugs were manufactured in Puerto Rico.

In 1996, Congress began phasing out the tax breaks. By 2006, many of those special tax breaks had been completely done away with, leading to a massive recession on the island. Unemployment surged, the working class suffered, and the Puerto Rican government began scrambling to fund its operations. The Puerto Rican government—including agencies like the Electric Power Authority or the Highways and Transportation Authority—began borrowing more and more money, leading to a rapidly increasing debt. Corruption on the island only worsened the problem.

US capitalists have been plundering Puerto Rico since the island came under US control after the Spanish-American War. / Image: Public domain

The 2008 global economic crisis did not spare Puerto Rico, compounding the debt crisis and leaving almost half of its residents in poverty and unemployed. That year, the Puerto Rican capitalist class implemented brutal austerity measures, laying off public workers and worsening unemployment.

In 2015, the governor announced Puerto Rico could not pay the $74 billion it had accumulated in public bond debt, plus $50 billion in unfunded pension obligations to public workers. In response, Congress passed the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) in 2016, under the Obama administration.

Under the impact of 2017’s Hurricane Maria and the 2019 earthquakes, the debt and financial crisis only worsened. Now, things will only escalate further as Hurricane Irma has yet again wreaked havoc on the island.

La Junta” makes the workers pay for the crisis

PROMESA established a financial oversight board, known as “La Junta,” to manage the island’s budget and impose a regime of looting and austerity to pay back Puerto Rico’s creditors. The PROMESA board pulls the strings—they have complete control over the island’s budget.

The board approved a plan from 2017–26 that placed the brunt of this crisis on the shoulders of working-class people. This is no surprise, considering who makes up the Washington-appointed board: former pharmaceutical executives, consulting firm executives, right-wing think tank researchers, and other representatives of the bourgeois class. The board has continually pushed to cut social programs, wages, and labor protections, to “incentivize” investors to flock to Puerto Rico.

2011 State of the Union Obama
La Junta,” set up under the Obama administration, imposed a regime of looting and austerity to pay back Puerto Rico’s creditors. / Image: Wikimedia Commons

As just one example of the austerity measures taken, in 2018, the board pushed to reduce sick leave and vacation pay for workers, and to cancel Christmas bonuses. That same year, the government-owned power authority—which distributed gas and generated electricity on the island, and holds nine billion dollars of the overall debt—was approved to be privatized by then-governor, Ricardo Rosselló. The push to privatize the power authority has been mired in corruption, with one of the private company’s CEOs labeled a fugitive by the local government. Meanwhile, the island’s population has been suffering from widespread power outages. In 2019, the board approved a deal to cut pensions for thousands of retired government workers.

However, the education system has likely taken the biggest hits of all. Since January 2017, the PROMESA board has implemented measures to slash the public university’s budget in half, increase tuition for university students, and closed a number of schools. In 2018, just a week after Rosselló announced the privatization of the power authority, he announced that the education system would be opened to privately run charter schools and private school vouchers.

Rosselló’s then-education secretary, Julia Keleher, who was previously a management consultant, took aim at the teachers’ union resisting the government’s attempts to attack education, and doubled down on providing more funding to private schools. After being forced to resign in 2019, Keleher was arrested by the FBI in a corruption investigation for illicitly “diverting” $15.5 million in federal funds allocated for health and education. She was sentenced in December, 2021 to six months in prison and 12 months of house arrest for conspiracy to commit fraud. Such are the rulers of the Puerto Rican people.

These attacks are compounded with the rising cost of living on the island. Since the power authority and utility was privatized, utility prices have skyrocketed. Housing prices are rising rapidly due to capitalists, crypto-bros, and finance leeches flocking to Puerto Rico to benefit from this tax-free “paradise.” The average home price has risen by more than 17% in one year, and the cost of food in the San Juan metropolitan area is 20.7% above the US average, while utilities are 61.8% above average.

Workers fight back against austerity

The workers of Puerto Rico aren’t taking these attacks on their living standards with their arms crossed. For years, even prior to the imposition of the Junta regime, education workers have been in constant struggle against austerity measures. In 2013, members of the teachers’ union protested government attempts to cut their pensions. And since 2016, there have been waves of protests, strikes, and occupations to fight back against the board’s class warfare.

Even prior to the imposition of the Junta regime, workers on the island were fighting back against attacks on their living standards. / Image: VOIXMAG, Flickr

Last October, hundreds of students at the University of Puerto Rico took part in widespread demonstrations to oppose proposed tuition hikes, as promoted by the PROMESA board. These protests echoed the even larger 2017 student strikes, during which one of the campuses was completely shut down by protesting students in response to massive budget cuts and tuition increases.

At the beginning of this year, teachers led the charge with a wave of sickouts. The demonstrations, dubbed the “teachers flu,” spread across the public sector as healthcare workers (“white flu”), firefighters (“red flu”), police (“blue flu”), EMT workers (“orange flu”), electrical workers, and others joined in to protest the debt restructuring plan. As the vice president of the Teachers’ Federation of Puerto Rico (FMPR) put it: “If there’s enough money to pay for an illegal debt—which we’re paying three times what a lot of bondholders paid in—if there’s enough money to splurge on statehood lobbyists… then there has to be enough money for educators.” The movement’s main slogans were for “fair wages” and a “dignified salary.”

In response to the protests, the governor told protesters they should consider other jobs if they were unhappy—a slap in the face to Puerto Rican workers. These remarks only further enraged the strikers. On different days over the course of the movement, thousands of teachers went out on strike, with only 28% reporting to work on February 4, and 18% on February 9. On February 4, 85% of firefighters struck and didn’t report for work.

Eventually, the board was forced to give in, with a $1,000 per month salary increase for teachers—the first wage increase they had received in 14 years. Firefighters received a $625 increase. However, money for the increase is being drawn from temporary federal pandemic funding, which is set to run out in 2024. Despite promises that the increase will be made permanent, it remains at risk depending on the state of the debt repayment.

Protests and strikes of public sector workers continued in February, and on May 1, union workers rallied to protest the debt restructuring plan and austerity program under the slogan “affordable public education and healthcare for the working people!” And on August 25, riot police in Old San Juan brutally suppressed a demonstration demanding the cancellation of the contract privatizing power distribution.

Protests and strikes of public sector workers continued in February, and on May 1, union workers rallied to protest the debt restructuring plan and austerity program / Image: SEIU, Flickr

Debt restructuring—a “new day” for Puerto Rico?

In March 2022, Puerto Rico’s public debt was formally restructured, nearly seven years after its government announced it was unable to pay off its $74 billion dollar debt. A federal judge approved the plan, reducing the largest portion of government debt from $33 billion to around $7.4 billion. But the “formal” end to the bankruptcy will change nothing for working-class Puerto Ricans.

This agreement went into effect after nearly five years of negotiations between the PROMESA board and creditors, a process that generated $1 billion in earnings for the US legal firms involved in the proceedings—straight from Puerto Rico’s state coffers. The plan also included an immediate $7 billion cash payment to bondholders.

Despite the restructuring, there are still billions of dollars unresolved. Most of the island’s debt is owned by US vulture hedge funds specialized in high-risk “troubled assets,” and firms like BlackRock, which paid cents on the dollar for the bonds. On top of that, reports reveal that nearly half the debt is interest, and another $1.6 billion is the result of fees paid to banks like Goldman Sachs and Citigroup.

As part of the plan, the budget of the only public university system, the University of Puerto Rico, has been cut again by 5%—totaling 53% in funding cuts in just four years. Public sector workers will have their pensions frozen without the possibility of an increase until the debt is paid. So, contrary to the bombastic, Orwellian claim of the oversight board that this would usher in a “new day for Puerto Rico,” the deal represents a continuation of the plunder of the island by Wall Street while the workers and poor suffer the consequences.

2019 shows the way forward

In 2019, a massive protest movement succeeded in bringing down the hated austerity government of Rosselló. Protests began after the arrest of Education Secretary Keleher, with demonstrators pointing to the entire administration as a bastion of corruption. But the movement exploded in response to “Telegramgate” in July, when hundreds of pages of a group chat between Rosselló and members of his cabinet on the messaging app Telegram were leaked to the public. The racist and homophobic messages were a faithful reflection of the degenerate class whose interests he defends. Leaked messages even showed those on the chat making fun of victims of Hurricane Maria.

In 2019, a massive protest movement brought down Rosselló’s hated austerity government. / Image: World Travel & Tourism Council, Wikimedia Commons

Hundreds of thousands of demonstrators poured into the streets, with radical demands including slogans calling for debt cancellation: “Esa deuda es ilegal, no la vamos a pagar!” (“The debt is illegal, we’re not going to pay it!”). After ten days of stormy mass protests and a general strike, the governor was forced to step down.

The movement marked a turning point in the fight against the capitalist crisis and the parasitic ruling class in the island. It demonstrated in practice that only mass working-class struggle can force concessions from the ruling class—and could even overthrow it. But the mighty spontaneity of the movement also revealed an inherent weakness. Lacking a mass working-class party or leadership to drive all that energy into an attack on the whole system, there was no program or organization able to provide a real alternative to Ricky and his cronies.

The working class and poor of Puerto Rico demanded that the entire hated PROMESA board leave the island (“Ricky renuncia y llévate a La Junta!”). Rosselló resigned, but the oversight board remained. Wanda Vazquez took his place as governor, and was later voted out of office in November 2020. In January 2021, the now-governor, Pedro Pierluisi, took office. True to form, Pierluisi is a member of Rosselló’s New Progressive Party and a former private attorney for the PROMESA board.

The problems in Puerto Rico do not lie solely with corrupt governors and government officials. The Junta is a useful tool for even more direct exploitation of the island by US capitalist interests. But as long as capitalism predominates in Puerto Rico and the US, the debt will not be nullified, and the island will not see a reversal of austerity. US colonial domination, the debt crisis, bankruptcy, austerity measures, the negligence and corruption in the face of climate catastrophe, and all the other horrors experienced by the Puerto Rican working class are a result of the capitalist system as a whole.

The world saw the revolutionary élan of the Puerto Rican working class during the 2019 mass protests. Youth and workers continue to strike, protest, and take to the streets, demonstrating the potential for massive change in the future. However, the student, teachers’, and trade union movements are not combined in a single political force. What is needed is a unified revolutionary political expression—armed with Marxist theory and perspectives—so these movements can pack an even more powerful punch.

The world saw the revolutionary élan of the Puerto Rican working class during the 2019 mass protests. / Image: Daryana Rivera, Wikimedia Commons

A successful revolutionary movement against US colonial rule and capitalist domination in Puerto Rico would be a source of inspiration for the mainland US, with its massive working-class population that includes nearly six million Puerto Ricans. The fundamental interests of workers on both the island and the mainland are the same, and diametrically opposed to the ruling class that exploits and oppresses us all.

Only by overthrowing the capitalist class can the working class take control of the economy and run it for the benefit of the majority, across all borders, rather than the profits of a few. A workers’ government would democratically plan production to provide all basic needs for the population, and also invest massively in infrastructure to avert the catastrophic consequences of events like Hurricanes Maria and Fiona. Socialist revolution in Puerto Rico and the US is the perspective we must fight for.

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