Last week Puerto Rico officially became the largest bankruptcy case in the history of the American public bond market. On May 3, a fiscal control board imposed on the island’s government by Washington less than year ago suddenly announced that the Puerto Rico’s economic crisis “has reached a breaking point.” The board asked for the immediate appointment of a federal judge to decide how to deal with a staggering $123 billion debt the commonwealth government and its public corporations owe to both bondholders and public employee pension systems.
The announcement sparked renewed press attention to a Caribbean territory that many have dubbed America’s Greece. The island’s total debt, according to the control board, is unprecedented for any government insolvency in the U.S., and it is certain to mushroom quickly if no action is taken. Detroit’s bankruptcy, by comparison, involved just $18 billion — one-ninth the size of Puerto Rico’s.
Within days, Supreme Court Chief Justice John Roberts, acting under a provision of the Puerto Rico Oversight, Management, and Economic Stability Act (known as PROMESA), which was enacted last June, appointed federal judge Laura Taylor Swain from the southern district of New York to take over the Puerto Rico case. A former bankruptcy court judge who was appointed to the federal court by President Clinton, Swain famously presided over the long criminal trial of employees of the Bernie Madoff Ponzi scheme.
Few press reports on Puerto Rico’s troubles, however, have bothered to examine the deeper issues behind this crisis.
First, the colonial relationship that has prevailed between the U.S. and Puerto Rico since 1898 is no longer viable. Puerto Rico is the largest overseas territory still under the sovereign control of the United States, and it is the most important colonial possession in this nation’s history. That relationship produced uncommon profits for American subsidiaries on the island for more than a century, even as the federal government kept claiming that the Commonwealth of Puerto Rico, created in 1952, was a self-governing territory. But now, with a Washington-appointed board directly overseeing the island’s economy, and with a pivotal Supreme Court decision last year affirming that Congress continues to exercise sovereign power over Puerto Rico, the mask of self-governance has been removed.