PUERTO RICO - Their Economic Crisis

"Everything you should know about Puerto Rico’s debt crisis" PBS NewsHour 7/11/2015

Excerpt

SUMMARY:  Puerto Rico’s financial crisis has been well-documented over the last few weeks, but a new report in the Washington Post sheds light on how Congress may have played a role in the fiscal troubles being felt in the U.S. commonwealth.  Michael Fletcher of The Washington Post joins Hari Sreenivasan from Baltimore with the latest.

HARI SREENIVASAN, PBS NEWSHOUR WEEKEND ANCHOR:  Now to financial trouble in Puerto Rico, where leaders want to declare bankruptcy, but cannot, unless the U.S. Congress changes the law.

Puerto Rico announced last month it simply cannot pay $72 billion in debt. Congressional Democrats want to allow limited bankruptcy relief, but Republicans say it’s not enough and that leaders need to address the territory’s underlying budget issues.

Ironically, a new report in The Washington Post says Congress has actually played a contributing role in the fiscal trouble of the U.S. commonwealth.

Joining us now with the details, from Baltimore, is Michael Fletcher, who has been covering the story.

You were just down there a few weeks ago.  So, what’s the U.S. responsibility in this crises?

MICHAEL FLETCHER, THE WASHINGTON POST:  Well, it’s interesting.  The political economy has been skewed for years by U.S. taxpayers essentially.  In many ways, early on decades ago, that led to a kind of a development of the island as kind of this manufacturing hub, which is a very generous tax break.

The first ones to clothing and shoe manufactures.  Then in 1970s, it kind of shifted to more capital-intensive businesses like pharmaceutical manufacturing.  And that made Puerto Rico into one of the top prescription drug manufacturers in the world.  At one point, something like 13 of the top 20 prescription drugs are actually made in Puerto Rico.

And in many ways, that development took away from other things the island might have done naturally, like develop more, its tourism sector or what have you.

It was fine as long as the tax break lasted, but then in 1996, Congress did away, it began to phase out that tax break, and ti was fully phase out since 2006.  And since then, Puerto Rico’s been in recession.

HARI SREENIVASAN:  And they can’t declare bankruptcy like Detroit can.

MICHAEL FLETCHER:  They can’t.  They’re treated just like states are under bankruptcy law.

[Un]like municipalities and hospital districts, things like that.  They can — they can declare bankruptcy which gives them breathing room to reorganize their debts, and Puerto Rico cannot do that.