Puerto Rico: It’s Not (Just) a Game

You call it PROMESA, they call it a decision made by colonial overlords that will further rob Puerto Rico of its democratic rights. Not exactly, po-TAY-to, po-TAH-to, is it? (Photo Credit: Zuma Press)

Some years ago, one of my friends, a mix of Cuban and Puerto Rican heritage, received the funniest birthday gift from some of my other non-Puerto Rican friends: Puerto Rico, the board game. Any inherent latent racism not withstanding, it turns out Puerto Rico is actually a pretty well-regarded strategic game. Created by two-time Spiel des Jahres winner Andreas Seyfarth, the 2002 German-style board game boasts a complexity the likes of which casual board game fans who find that the bubble-popping pleasures of Trouble puts them at their limit will immediately find themselves out of their element. There are five different types of Goods, which can either be sold to a Trader for Doubloons or shipped home with a Captain for Victory Points. Trader and Captain, meanwhile, are just two of several roles which Rotate among the players involved and afford the holding player one or more Actions associated with that role. But waitthere’s more! There are also cards/game pieces for Buildings, Cargo Ships, Colonists, and Island Tiles. Had enough fun yet?

What’s my point, beyond the apparent fact you need sufficient patience and time to play Puerto Rico? The merits of its design aside, it’s a game of which the premise is built on the practice of colonialism. You know, because what else could make a laborious strategic enterprise even more enjoyable but a little colonialism thrown into the mix? Puerto Rico, like any number of modern island nations and territories, was, centuries ago, populated by native peoplesin this case, the Taínowho were minding their own business until white people showed up and ruined the party. Good old Christopher Columbus, the patron saint of European colonization and wayward navigation, stumbled upon the land during his travels, and after reporting his findings back to the Spanish crown, returned in 1493 with orders to help expand Spain’s empireby any means necessary. In the coming decades, the island which came to be known as “Puerto Rico” saw a full-scale colonization effort on the part of Spain, and a massive dying-out of much of the indigenous population. It helps when you force individuals into working in encomiendas, ignore the Laws of Burgos which expressly forbade the mistreatment of indigenous peoples on the islands of Hispaniola, Jamaica and Puerto Rico, and have any number of infectious diseases at your disposal. Nothing like biological warfare to help subjugate people with darker skin than you.

Is your white guilt kicking in yet? No? Don’t worryI’m not even close to being finished. Flash forward to today, and Puerto Rico is no longer a Spanish colony, but rather a commonwealth of the United States of America (thanks, Spanish-American War!). If you think this has spared Puerto Rico from exploitation, however, you’d be very wrong. Puerto Rico just defaulted on some $2 million of debt owed, necessitating the intervention of Congress with the passage of the Puerto Rico Oversight, Management and Economic Stability Act, or PROMESA (promesa is Spanish for “promise), which, among other things, outlines the creation of an Oversight Board to aid in managing the island’s handling of its obligations going forward and restructuring its debt. So, how did it get this bad for the place known primarily to mainland Americans as a source of delicious rums and talented baseball players? A few months ago, John Oliver chimed in on the Puerto Rican debt crisis with an extended segment on the current problems facing the commonwealth and the origins of its distress. Regarding what has contributed to the mess Puerto Rico is in, a number of individual decisions by the American and Puerto Rican governments are highlighted in greasing the wheels to economic/financial/fiscal ruin, including:

  • Sec. 936 tax breaks: To encourage companies to flock to Puerto Rico, the island and its prospective business suitors were afforded tax breaks under Section 936 of the U.S. Tax Code, effected in 1976. Generous tax breaks, at that, and loopholes by which the “foreign” subsidiaries corporations could avoid paying income tax if they distributed monies to the parent in the form of dividends. You can read more about the specifics from the Tax Foundation here, but suffice it to say, from a tax collection perspective, this was a disaster. Economically, however, for Puerto Rico, this was a valuable source of revenue, such that when the tax breaks began to be phased out twenty years after that with Sec. 936’s repeal, this set the stage for collapse when, predictably, those businesses which first came in waves left the same way. And so did a significant part of Puerto Rico’s economy.
  • Triple tax-exempt municipal bonds: Also not particularly helpful in the debt reduction vs. debt creation situation has been the sale of Puerto Rican bonds that were tax-exempt at the federal, state and local levels. As the same Tax Foundation piece explains, this was all well and good when Puerto Rico’s finances weren’t in complete shambles, but now that they are, this creates a situation whereby a shit-ton of debt is owed without the ability to pay it.
  • Rewriting the language of laws to pay certain creditors first: OK, so Puerto Rico incurred its fair share of debt, but it was still hopeful of paying it off, so it agreed to new language in its Constitution to satisfy bondholders first before other creditors and lenders. Fine, but when a commonwealth such as Puerto Rico owes all sorts of parties, including those that provide essential services such as access to hospitals and schools, this presents a major problem for the people who have to live there.
  • No Chapter 9 bankruptcy as a non-state/Bankruptcy Amendments and Federal Judgeship Act of 1984: One of the most galling aspects of Puerto Rico’s depression, as John Oliver illuminates, is that, unlike American municipalities such as Detroit, Puerto Rico can’t claim relief under Chapter 9 bankruptcy. What’s particularly frustrating about this inability of Puerto Rico’s is that its genesis is essentially steeped in mystery. The provision stripping Puerto Rico of the right to file for bankruptcy included as a change to the Bankruptcy Amendments and Federal Judgeship Act of 1984nobody is quite sure how it got there. Oliver puts the onus on Strom Thurmond, who did, in fact, technically propose the amendment, but Politifact puts this in context, noting that this change was a holdover from an earlier piece of legislation, was bundled with a number of other modifications, and was, perhaps not all that well understood by Thurmond. Still, that this provision ever existedas Sen. Clay Davis would put it, is “some shameful shit.”
  • Exempting wealthy investors/businesses from capital gains taxes: To paraphrase John Oliver, this incentive made for pretty good white people bait. Despite any inherent unfairness to the existing residents of the island, the adoption of Act 22 in 2012 made most forms of investment income tax-free. In theory, this was supposed to encourage companies and investors to create jobs and otherwise contribute to the Puerto Rican economy. As Oliver and Reuters correspondent Edward Krudy have spelled out, however, the results haven’t been all that encouraging. As many have reasoned, Puerto Rico has become one big tax haven with little personal benefit to show for it.
  • “Vulture” funds: Perhaps the most sinister of creditors looking for their Puerto Rican payday are hedge fund managers, who own significant amounts of the commonwealth’s tax-exempt bonds after buying them on the cheap, and seek a full return even in the face of government cuts to pensions and social services, not to mention widespread poverty on the island. This is why these hedge funds are so aptly referred to as “vulture funds.” Like vultures, the managers of these funds circle the financial skies, waiting for weak debtors like Puerto Rico to give up the ghost, or in this case, default on their obligations. As many would see it, this is greed at its finest (read: worst).
  • UBS sells risky bonds to itself since Investment Company Act of 1940 doesn’t apply: Think it might be a conflict of interest for an investment bank like UBS to sell bond funds containing bonds the bank itself underwrote? Yes, and illegal too, in the United States under the Investment Company Act of 1940, but not in the anything-goes investment climate of Puerto Rico. Scores of unsuspecting investors neither understanding the depth of Puerto Rico’s woes nor the idea that the investment vehicles they purchased were based on assets doomed to fail have been forced to sell back their investments for much less than they thought they would initially net, or to go to arbitration. David Evans of Bloomberg wrote a piece about UBS’s shady financial “services” practices surrounding Puerto Rican debit in September of last year, which explains this in greater detail just in case you’re not sufficiently pissed off already.

Thus, PROMESA, which provides temporary relief to Puerto Rico, a land of 3.5 million American million citizens, is a good thing, right? Depends on who you ask. In the immediate sense, this so-called “rescue” of an insolvent Puerto Rico may have been necessary as a means of preventing the sharks, vultures or any other metaphorical predatory animals from circling, but speaking once more in imagery, if PROMESA is a life preserver, the depth of the island’s troubles means it’s not out of the water yet. Far from it, in fact. The provisions of PROMESA don’t require a “bailout” in terms of taxpayer funding, but long-term, there are serious questions about what management and restructuring of Puerto Rico’s debt will entail. Almost certainly, new austerity measures will take effect, and the poorest and least financially capable residents of Puerto Rico will likely bear the brunt of any cuts. Moreover, the Oversight Board appointed by the Act will be comprised of people who were not chosen by Puerto Ricans and have no ties to Puerto Rico, and therefore will possess no substantial incentive to develop a truly fair debt management plan for its people.

PROMESA passed the Senate 68 to 30 on June 29 before being signed into law by President Obama, but not without vocal dissent from those who opposed the legislation in its final form. Sen. Bob Menéndez (D-NJ) was among its more fervent critics, citing numerous reasons as to why PROMESA is a flawed bit of policy:

It is a vote to authorize an unelected, unchecked and all-powerful control board to determine Puerto Rico’s destiny for a generation or more. It is a vote to authorize an unelected and all-powerful control board that could close schools, shutter hospitals, and cut senior citizens’ pensions to the bone. It is a vote to force Puerto Rico, without their say, to go $370 million further in debt to pay for this omnipotent control board which they don’t even want. It is a vote to cut the minimum wage down to $4.25 per hour for younger workers in Puerto Rico. It is a vote to make Puerto Ricans work long overtime hours without fair compensation or protection. It is a vote to jeopardize collective bargaining agreements. It is a vote to cut worker benefits and privatize inherent government functions. It is a vote to place well-heeled hedge funds and creditors ahead of the people. It is a vote to give the board the power to sell off and commercialize natural  treasures that belong to the people of Puerto Rico. And at its worst, it is a vote to authorize an unelected, unchecked and all-powerful  control board that determines Puerto Rico’s destiny for a generation or more.

Bernie Sanders was also highly critical of the Act. Echoing Sen. Menéndez’s sentiments, Sanders derided PROMESA as something which makes the United States its “colonial master,” depicting it as a drain on Puerto Rico’s rights and a punishment for its people. You can watch the video and read the full transcript here on Salon. Oh, and don’t forget to #FeelTheBern while you do.

Puerto Rico may be a board game, but the real-life Puerto Rico is not a game, especially for the three-and-a-half million men, women and children who live there. Even so, American hedge fund managers and lawmakers apparently want to play fast and loose with its finances like they were selling cash crops for Doubloons. In reality, Puerto Rico itself is being bought and sold by people who likely won’t be the ones most adversely affected by the actions of those pulling the strings economically and politically. As a commonwealth and not a full state, as well as an island unto itself, Puerto Rico may seem remote to many Americans, who may have their own problems, to be sure. Still, as Lin-Manuel Miranda, creator and soon-to-be former star of the musical Hamilton, reasons at the end of John Oliver’s segment on Puerto Rico, the commonwealth of the United States is only 100 miles away from the mainland. Besides, as stressed earlier, they are American citizens. They may not be able to vote directly for president, but they did participate in the presidential primaries. I mean, they overwhelmingly chose someone who supports PROMESA, what Juan González of the New York Daily News referred to in a recent column piece as a “poison pill,” but hey, that’s their choice to make!

So, yes, let’s treat Puerto Rico as a commonwealth and not a colony. They’re in enough trouble as it isand no, I’m not talking about the board game Trouble, OK?

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