Source Manager’s Journal: The Puerto Rico ‘Rescue’ and the V.I.

On the brink of Puerto Rico’s most recent default, Congress passed and President Obama signed PROMESA (Puerto Rico Oversight, Management and Economic Stability Act).

PROMESA: very clever. The title calls to mind the famous comment about the Holy Roman Empire. That it was neither holy, Roman nor an empire. Puerto Rico is about to get a heavy dose of oversight, but there is likely to be scant management or economic stability.

If ever there were a case of picking the "least worst," rather than the best choice, this was it. Rather than asking, what can we do that will get Puerto Rico out of a decades-long recession, stem the flood of talent leaving the island and make sure this doesn’t happen again, the lawmakers asked two simpler questions: what can we pass that won’t produce an attack ad against me for wasting taxpayer money? And how can we get out of town fast for the Fourth of July recess?

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For Virgin Islanders, there would appear to be two relevant questions in this scenario: first, what does this law mean for the territory’s close neighbor? And, second, are there any messages here for the future of the Virgin Islands? These are big questions, and it is worth starting with a dose of humility. Predicting the future is a game for television talking heads. So let’s start with what we know.

The law that President Obama just signed contains several priorities. Each of them reflects our current political reality. In order of importance, those priorities are: (1) No "bailout." No tax dollars should go to the undeserving and profligate Puerto Ricans; (2) "Reform" Puerto Rico through a Republican-dominated "Control Board," which will have two goals: to punish Puerto Rico for its sins, and to act in the "best interests of the creditors"; (3) "Stabilize" the financial situation by providing an orderly process for dealing with Puerto Rico’s unmanageable debt.

There is only one thing missing from these priorities: Puerto Ricans. In signing the bill, the president said its intent was to produce "greater prosperity over the long term for the Puerto Rican people." But we don’t live in the long term. As John Maynard Keynes famously said, "In the long run, we are all dead." Whenever a politician uses the phrase "the long term," you can be pretty certain that a lot of bad things are going to happen in "the short term."

Although it is not permissible to say it in the current climate, what Puerto Rico needed was – and remains – a "bailout." Instead, they have gotten a cold shower. And, despite being some thirty times larger than the Virgin Islands and with, at least theoretically, more fully defined rights, when the crunch came, Puerto Ricans were treated as little more than colonial subjects.

So why did the president sign this bill? And why did many Democrats vote for it? The best answer to this question comes from something Vice President Biden once said, "Don’t compare me to the Almighty. Compare me to the alternative." In our current political environment, the choice was not between good and bad. It was between very bad (PROMESA) and horrible, between some measure of order and the chaos that would have accompanied the July 1 default, between that chaos and some hope of "fixing" this bad law down the road.

"PROMESA" reflects the values of the Republican right and its choke hold on our politics. For example, for ideological reasons, which will have no positive economic effect in Puerto Rico, the minimum wage must now be reduced from $7.25 to $4.25. In addition, the seven-person control board will have a budget of $370 million, all of which is to be paid for by Puerto Ricans. In some ways, this law, with its focus on austerity and teaching the Puerto Ricans about "moral hazard," will be a replay of the European Union’s Greek drama, with a similarly disastrous outcome.

So what does it all mean for the Virgin Islands? First of all, when you look at what has happened, you can make the case that Puerto Rico brought this calamity on itself. All of the usual bad ingredients have been present: corruption, fiscal irresponsibility, bloated government, low standards, repeated warnings, etc. Anyone in the Virgin Islands want to try that shoe on to see if it fits? When the territory’s crunch comes, and its many sins are exposed, how do Virgin Islanders think that the United States government and the territory’s creditors will treat them?

A second lesson is that ignorance and indifference are a powerful combination. The members of Congress who passed this legislation know nothing of Puerto Rico or its history. They have an ideology and powerful lobbyists. These lawmakers have no sense of the forces that they have unleashed.

For example, in the last referendum, the vote for Puerto Rican independence got less than 6% of the total. Expect that number to skyrocket in the next decades, especially after a big chunk of the Puerto Rican population has left the island for the mainland. In the case of the Virgin Islands, the entire population could leave, and very few mainland Americans would even notice.

The final lesson is a big one. It is that, as with almost all big issues, the clock is always ticking. At some point, tomorrow becomes today. And somebody is left holding the bag. Puerto Rico is now going to be firmly under the control of a group of four Republican-appointed "monitors." There will be no "do-over." The interests of the Puerto Rican people will be placed somewhere down the line.

Virgin Islanders have a fairly fundamental choice. Begin to take substantive positive action on a range of pressing governmental, financial, political and social issues, or wake up one morning being governed by a "control board." They will be a group of strangers whose values and priorities are totally antithetical to ours, and who are very likely to turn a deaf ear to the concerns that we voice. 

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