Residents of Puerto Rico possess almost $30 billion, or around 42 percent of the island’s outstanding debt. They, along with local businesses, are the ones who are most affected by the government’s budget cuts and tax hikes enacted to stabilize the island’s finances. CNBC’s Michele Caruso wrote on January 24, 2014, that “Almost everything and everyone had their taxes and fees raised. Personal income taxes, corporation taxes, sales taxes, sin taxes, and insurance premium taxes were all raised or imposed for the first time. Instructors’ retirement age was increased from 47 to at least 55 for current teachers and 62 for new teachers.” For a country with a purchasing power parity (PPP) per capita of $16,300 and 41% of the population living in poverty, this is a considerable expense to bear. The legislative assembly and the governor also worked jointly to decrease operational deficits and restructure the pension systems for public employees, teachers, and judges. They also stated their intention to cut appropriations by $170 million in the current fiscal year and budget for balanced operations in the future fiscal year. On March 3, 2014, Puerto Rico’s 17th Legislative Assembly passed a bill allowing the Puerto Rico Government Development Bank to issue $3.5 billion in bonds in order to recover its liquidity. The bill was quickly signed by the Governor the next day, and it became Act 34 of 2014. (Pub.L. 2014-34).
What is the status of Puerto Rico bonds?
MIAMI, Florida On Tuesday, a federal judge approved Puerto Rico’s exit from bankruptcy under the largest public-sector debt restructuring plan in US history, nearly five years after the financially beleaguered territory claimed it couldn’t pay its creditors.
Hurricanes Irma and Maria, a series of earthquakes, and the coronavirus epidemic have only exacerbated Puerto Rico’s economic woes since it declared bankruptcy.
The restructuring proposal will cut the government of Puerto Rico’s debt, which totals $33 billion, by nearly 80%, to $7.4 billion. In addition, the agreement will save the government approximately $50 billion in debt payments.
Puerto Rico will also begin repaying creditors, albeit at a reduced rate, something it has not done in years. In 2015, the government announced that it would be unable to repay its debts.
What is Puerto Rico’s debt to the United States?
The public debt of Puerto Rico could be lowered from $70 billion to $34 billion, with debt from the Public Buildings Authority and general obligations bonds cut from $18.8 billion to $7.4 billion.
Who owns Puerto Rico in reality?
Puerto Rico is a Caribbean territory about a thousand miles southeast of Florida with a complicated colonial history and political position. Puerto Rico’s 3.2 million residents are US citizens because it is a US territory.
Is it true that Puerto Rico bonds pay interest?
11 As a result, people of all 50 states and other US territories were able to invest in Puerto Rican bonds without having to pay interest on the money they earned. Investment dollars began pouring into Puerto Rican government bonds, which was unsurprising. For decades, this did not present severe concerns.
Is Puerto Rico still debt-ridden?
Puerto Rico’s gross national income fell by 14 percent between 2007 and 2017, and 46 percent of the population lived below the federal poverty level in 2015, compared to the national average of 15 percent in the United States. The national debt of Puerto Rico is now at $74 billion, but unlike mainland municipalities, it is not protected by Chapter 9 of the United States Bankruptcy Code and hence cannot file for bankruptcy.
What is the state of Puerto Rico’s economy?
The World Bank classifies Puerto Rico’s economy as a high-income country, while the World Economic Forum ranks it as Latin America’s most competitive economy. Manufacturing, particularly pharmaceuticals, textiles, petrochemicals, and electronics, are the main drivers of Puerto Rico’s economy, followed by the service industry, particularly finance, insurance, real estate, and tourism. Puerto Rico’s geography and political status are both determining factors in its economic prosperity, owing to its small size as an island; its lack of natural resources used to produce raw materials, and thus its reliance on imports; and its relationship with the US federal government, which controls its foreign policies while imposing trade restrictions, particularly in the shipping industry.
On a macroeconomic level, Puerto Rico has been in a state of economic depression for 16 years, beginning in 2006 after a series of negative cash flows and the expiration of the US Internal Revenue Code’s section 936, which applied to Puerto Rico. This section was critical for the island’s economy because it established tax exemptions for U.S. corporations that settled in Puerto Rico and allowed its subsidiaries operating on the island to send earnings to the parent corporation at any time without having to pay federal tax on corporate income. Puerto Rico, on the other hand, has remarkably managed to keep inflation low during the last decade. Academically, the majority of Puerto Rico’s economic woes stem from federal regulations that have expired, been repealed, or no longer apply to the island; its inability to become self-sufficient and self-sustaining throughout history; its highly politicized public policy, which tends to change whenever a political party gains power; and its highly inefficient local government, which has amassed a public debt equal to 66 percent of its gross domestic product.
Puerto Rico has a lower poverty rate than the poorest state in the US, with 45 percent of the population living below the poverty line. When compared to the rest of Latin America, Puerto Rico has the highest GDP per capita. The Commonwealth has a tremendous bond debt that it can’t service, totaling $70 billion in early 2017, or $12,000 per capita, at a time when its unemployment rate (8.0 percent in October 2018) is more than double that of the mainland. During a decade-long recession, the debt had been rising. To avoid a bankruptcy-like procedure under PROMESA, Puerto Rico must establish restructuring agreements with creditors. More specifically, since 2016, Puerto Rico has been in an unusual situation: its economy has been overseen by a federal board that is handling finances and assisting in regaining access to capital markets.
The commonwealth has a modern infrastructure, a significant public sector, and an institutional framework governed by the regulations of US federal agencies, the majority of which are present and operating on the island. The United States, Ireland, and Japan are its key commercial partners, with the majority of its products coming from East Asia, primarily China, Hong Kong, and Taiwan. In 2016, new trading partners were added, with import trade with Puerto Rico beginning in Singapore, Switzerland, and South Korea. Puerto Rico’s global reliance on oil for transportation and electrical generation, as well as its reliance on food imports and raw materials, renders the island fragile and highly reactive to global economic and climate changes.
When did the bonds of Puerto Rico default?
Puerto Rico first defaulted on its general obligation bonds in July 2016, when it failed to pay creditors about $1 billion, and it hasn’t made any payments since.
“It is a very positive development for Puerto Rico that a cross section of large bondholders has worked with the Oversight Board to develop a consensual restructuring agreement that will expedite the Commonwealth’s exit from bankruptcy, respect the lawful priority of valid public debt, and help restore capital markets access,” said Susheel Kirpalani, an attorney from Quinn Emanuel Urquhart & Sullivan who represents bondholders in the Lawful Constitutional Deficit Resolution.
According to public disclosures, hedge funds GoldenTree Asset Management, Monarch Alternative Capital, Whitebox Advisors, and Taconic Capital possess nearly $1.4 billion in constitutionally backed debt.
According to a person familiar with the settlement agreement, the proposal, which took about three months to negotiate, is expected to be lodged with the court within 30 days, with bondholders anticipating final approval by early 2020.
The Puerto Rican government issued a statement rejecting the agreement, citing the administration’s strong opposition to pension changes, which are included in the updated budgetary plan on which the restructuring agreement is based.
In a statement, Christian Sobrino Vega, the CEO and president of the Puerto Rico Fiscal Agency and Financial Advisory Authority, said, “Not one word of the PSA (Plan Support Agreement) is considered acceptable to AAFAF.” The Spanish acronym for the agency’s name is AAFAF.
“And we can firmly state that no legislation, executive action, or other administrative approval required from the Puerto Rico government will be taken to implement an agreement that directly or indirectly supports a Plan of Adjustment that decreases payments to our retirees,” Sobrino Vega said.
After being appointed in 2017 to monitor the $73 billion reorganization, which is the largest in the history of the US municipal bond market, the island’s oversight board has made some progress in 2019.
U.S. District Judge Laura Taylor Swain, who is supervising the unprecedented bankruptcy-like proceedings, authorized a plan in February to restructure approximately $17 billion in sales tax-backed bonds, dubbed COFINA for its Spanish name. Senior bondholders received 93 percent of their money back, while junior bondholders received 53 percent.
In addition, the court granted a debt restructure for the Government Development Bank worth roughly $4 billion.
A tentative arrangement for around $8 billion in debt issued by the island’s troubled electric power authority has also been reached. The monitoring board also announced a tentative agreement on Wednesday to restructure more than $50 billion in unfunded pension liabilities.
Is Puerto Rico eligible for government assistance?
In Puerto Rico, public welfare is a system that provides food assistance, public health, education, and subsidized public housing, among other things, to the island’s poor.
Is it true that Puerto Rico pays US taxes?
While the Commonwealth government has its own tax regulations, Puerto Ricans must also pay US federal taxes, while most citizens are exempt from the federal personal income tax.
Both the Federal Insurance Contributions Act (FICA) tax (a payroll withholding tax that pays Social Security and Medicare) and the Federal Unemployment Tax Act (FUTA) apply to employers in Puerto Rico (FUTA). Employers in Puerto Rico are required to deduct the employee component of FICA taxes from employees’ pay and contribute the employer portion.
What happens if Puerto Rico secedes from the United States?
On the Vieques testing range in 1999, a bomb went off and killed a Puerto Rican security guard working for the US Navy. This act sparked widespread outrage and calls for the Navy to evacuate the island right away. The Navy claims that the testing center is critical to the country’s defense. Despite this, President George W. Bush has stated that the Navy will relinquish Vieques by 2003.
The Vieques cause has become a symbol of dissatisfaction with Puerto Rico’s existing governmental status as a “commonwealth” for many Puerto Ricans. Puerto Rico is now referred to as “the world’s oldest colony” by some.
Following the Civil War, the United States’ fast rising industrial and naval prowess piqued its interest in gaining new territories across the world. “The taste of empire is in the tongue of the people,” as one newspaper put it at the time. A battle with Spain provided the opportunity.
For 400 years, Spain has governed over her territories of Cuba and Puerto Rico. Spain granted both countries their own elected legislatures in 1897. The inaugural meeting of Puerto Rico’s legislature took place on April 25, 1898, the day the United States declared war on Spain.
The US battleship Maine had blown up in the harbor of Havana, Cuba, two months prior, in February 1898. The United States blamed the Spanish for the disaster and demanded that they promptly grant independence to Cuba, which was already in revolt. When Spain refused, the US declared war on Cuba and conquered it.
Fearing that Spain would surrender before additional Spanish possessions could be occupied, US authorities ordered General Nelson Miles to invade Puerto Rico on July 25. The Spanish-speaking civilian population greeted the Americans with enthusiasm, perhaps assuming they had arrived to assist Puerto Rico in becoming a free and independent nation. Instead, Miles encouraged Puerto Ricans to “embrace with enthusiasm the United States Government system.”
The Treaty of Paris, signed by the United States and Spain a few months later, brought the war to a conclusion. Although Spain acknowledged Cuba’s independence, it gave the Philippines, Guam, and Puerto Rico to the United States. The treaty specified that “the civil rights and political conditions of the natural residents should be defined by the Congress” with regards to Puerto Rico. That’s how it’s been ever since.
For the next two years, Puerto Rico was controlled by American military governors selected by the president. These governors improved the state of health, education, and the economy. They did, however, dissolve the freshly elected Puerto Rican legislature, select solely Americans to lead government departments, and suppress local newspapers. Puerto Ricans are still “unfit for self-government,” according to the last military ruler.
The Foraker Act, which established a civilian government for Puerto Rico, was passed by Congress in 1900. The governor, heads of government agencies, and judges of the Puerto Rican Supreme Court were all appointed by the president of the United States, with the advice and permission of the Senate. Delegates to a single-house legislature and a “Resident Commissioner” were elected by Puerto Rican citizens. In Washington, the commissioner represented Puerto Rico’s interests, but he was not a member of Congress. Puerto Ricans were also excluded from paying federal taxes under the Foraker Act. The new civilian administration would be funded by federal grants.
For the first time, the constitutional status of America’s freshly acquired overseas colonies had to be decided by US courts. The United States Constitution grants Congress the “Power to dispose of and adopt all necessary Rules and Regulations regarding the Territory or other Property belonging to the United States,” according to Article IV, Section 3.
The United States Supreme Court declared in a series of rulings between 1901 and 1905 that acquisitions like Puerto Rico were territory “owned by the United States.” As a result, Congress had the authority to enact legislation that determined their political standing. The Supreme Court also determined that residents of territorial holdings such as Puerto Rico were only protected by “fundamental rights,” not the entire US Bill of Rights.
The Foraker Act requires the president of the United States to select a U.S. citizen as governor of Puerto Rico. The military government’s policy of only allowing English education in public schools was continued by the appointed governors. (After WWII, Spanish became the primary language in schools once more.)
The Jones Act, passed by Congress in 1917, gave Puerto Rico a two-house legislature. Most importantly, Puerto Ricans were granted U.S. citizenship as a result of this statute. However, they were nonetheless barred from voting for president and exercising other privileges afforded to mainland Americans.
President Franklin D. Roosevelt suggested to Congress during World War II that the people of Puerto Rico be given the opportunity to elect their governor. After the war, Congress passed Roosevelt’s proposal, and Puerto Rican citizens chose their first governor in 1948.
Congress approved a mechanism two years later to broaden democratic self-government by allowing Puerto Ricans to write their own constitution. Puerto Rican voters approved a new constitution after a constitutional convention presented it to them. The law was then approved by Congress, but it was stripped of its bill of rights, which included extensive protections like the “right to an adequate standard of life.” Finally, on July 3, 1952, President Truman signed the statute establishing the “Commonwealth of Puerto Rico’s” constitution.
The Puerto Rican people have been debating the future fate of their homeland since 1952. A majority of Puerto Ricans have yet to agree on whether the island should remain a commonwealth, be recognized as a state, or become an independent country.
Unlike the Philippines, which gained independence in 1946, and Hawaii, which became a state in 1959, the political destiny of Puerto Rico remains undetermined. Many Puerto Ricans, as evidenced by the ongoing Vieques protest, claim they desire more autonomy over their island’s affairs. However, neither the Puerto Rican people nor Congress have decided on a specific future direction.
- American citizens who serve in the military and live in the United States are known as Puerto Ricans.
- The constitution of Puerto Rico guarantees self-government in most local concerns, including the right to elect a governor and a two-house legislature.
- Puerto Ricans are not subject to federal income taxes, but they are required to contribute to Social Security.
- A substantial chunk of Puerto Rico’s government is funded by federal funding (more than $10 billion per year).
- Gives citizens the right to vote for the president of the United States and to elect a voting representative to Congress (would probably require amending the U.S. Constitution).
- All of these improvements would need to be approved by Congress, which would retain ultimate control over Puerto Rico as a territorial possession.
- Puerto Rico would have the same legal status as the other 50 states and would no longer be governed by Congress.
- Puerto Rico would be represented in Congress by two senators and around seven legislative representatives.
- Financial benefits from the federal government would increase, but Puerto Ricans would have to pay federal income taxes.
- As a prerequisite of statehood, Congress would almost certainly require English to be the primary language of administration and education.
- Puerto Rico would gain independence as an independent nation with its own political system, language, culture, and UN membership.
- The US would no longer be bound to give financial assistance, but all military posts would be forfeited unless Puerto Rico agreed to lease them.
- Some, if not all, Puerto Ricans would lose their U.S. citizenship and right to reside in the country.
- Puerto Rico would be a poor country reliant on handouts from other countries.
A succession of plebiscites on Puerto Rico’s future status have been held. The most recent was in 1998. The results were as follows, with over 1.5 million voters casting ballots and a turnout rate of 71.3 percent of all registered voters: