Puerto Rico: bonds are junked despite ‘reforms’

The US financial services company Standard & Poor's Ratings (S&P) announced on Feb. 4 that it was reducing the Puerto Rican government's bonds to junk status; another US ratings agency, Moody's Corporation, made a similar move on Feb. 7. Gov. Alejandro García Padilla responded on Feb. 4 that Puerto Rico would be able to overcome the financial crisis by implementing budget cuts; for the fiscal year 2014-2015 the island would have its first balanced budget since the 1970s, he said. The government faces a tremendous $70 billion debt, fueled in past years by its ability to offer tax-free municipal bonds to US investors. For comparison, last July the US city Detroit declared bankruptcy because it faced a debt of $28 billion; with a much larger debt, Puerto Rico is ineligible for Chapter 9 municipal bankruptcy protection. The administration of US president Barack Obama has indicated that it isn't considering a bailout for the island. (Prensa Latina, Feb. 5; Reuters, Feb. 7)

In his remarks after S&P lowered the bonds' rating, Gov. García Padilla complained that his government had done everything the bondholders had asked. Writing in the Puerto Rican weekly Claridad, University of Puerto Rico (UPR) Hispanic studies professor Félix Córdova Iturregui agreed that the government had shown "total docility…before the financial interests that hold the economy captive. The government is a hostage of the bond rating agencies." Successive Puerto Rican governments have in fact routinely followed Wall Street's recommendations for austerity and privatization; the latest example was the reduction of teachers' pensions in December, setting off a two-day teachers' strike in mid-January. These policies "have failed spectacularly," Prof. Córdova wrote, calling for "the country's democratic forces to restructure our economy," possibly starting with a debt moratorium. (Claridad, Feb. 4)

From Weekly News Update on the Americas, February 9.