Debt-choked Puerto Rico on Tuesday "narrowly avoided" economic default by scrounging together an 11th-hour payment toward its $354 million debt to Wall Street vulture funds, an unexpected move likely resulting from the island's submission to austerity cuts and other drastic government measures.
Sen. Richard Blumenthal (D-CT), speaking after a U.S. Senate Judiciary Committee hearing Tuesday morning with Puerto Rico Governor Alejandro Garcia Padilla, said the commonwealth had "narrowly avoided a complete default" on its total $72 billion debt through "unsustainable financial gymnastics."
Hedge funds have recommended closing schools and laying off teachers to close the debt, while the International Monetary Fund (IMF) has said Puerto Rico should raise taxes and lower the minimum wage. Meanwhile, Wall Street institutions like Goldman Sachs, Citigroup, and UBS, which bought up huge chunks of Puerto Rico's debt at a discount and have been forcing the commonwealth into an ever-deepening deficit to meet payments, have rejected Garcia Padilla's attempts to reduce or restructure the debt.
A default could trigger further government austerity and lawsuits by bondholders--destructive prospects on an island where 45 percent of its 3.5 million residents lives in poverty. Puerto Rico previously defaulted on its debt in August.
"It's not that Puerto Ricans are lazy people who don't want to pay their debt," former New York state assemblyman Nelson Denis told the Guardian on Tuesday. "It's extremely rich corporations that are socking it to both the very poor in Puerto Rico and to middle-class Americans."
However, according to Denis, some of the blame also lies with the Garcia Padilla administration, which he said willingly allowed private institutions to take over Puerto Rico's deteriorating infrastructure. "These motherfuckers are in league with their Wall Street captors and there's no other way to put it," Denis told the Guardian. "It's sickening."
And the Senate Judiciary Committee, which could pass a bill that would allow some Puerto Rican agencies to file for bankruptcy--a measure that has stalled for lack of one Republican sponsor--appears in no rush to help the commonwealth, Bloomberg reported Monday.
Puerto Rico cannot legally declare bankruptcy without being classified as a U.S. state, which requires congressional action. As journalist and Columbia University professor Ed Morales wrote for The Nation in July, "the island's lack of full entitlement is one of the reasons Puerto Ricans are second-class citizens."
Further, Garcia Padilla's embrace of low-tax policies for corporate investors who lived part-time on the island was a "desperate attempt" to keep outside financiers interested, Morales said.
In the U.S., an organization promoting alternative approaches to Puerto Rico's economic emergency is is planning a Wednesday afternoon demonstration on Wall Street to "say no to the odious debt and criminal attacks of the vulture funds and the Wall Street wolves. No to the Federal Fiscal Board and to surrendering our future to big interests. No to the dismantling and privatization of the public school system, the layoffs of teachers and other essential workers and services."
"It is time to say NO to Colonialism and YES to Independence for Puerto Rico as the only way out of the fiscal, political and social crisis that destroys our nation," said the group, A Call to Action on Puerto Rico, which describes itself as "a collective of groups and individuals of the Puerto Rican diaspora seeking solutions to the crisis in Puerto Rico from an anti-colonial and pro-independence perspective."
As one New York-based activist, David Galarza, told Morales in July, "The people in Puerto Rico shouldn't be made to pay for the sins of these hedge-fund vultures."
