By several measures, things are not going well in Puerto Rico. Tens of thousands of homes have been left with no water after a major break on a principal water main. Blackouts have become normalized. A political scandal involving allegations of corruption and political meddling has led to a wave of top-level resignations.
But in another, ironically controversial way, things are looking up for the U.S. territory.
Ten years ago the island was deep in fiscal crisis after the government spent more money that it generated in revenue for 16 straight years. Finally, the weight of all its loans became too much to bear, and the Puerto Rican government essentially was at risk of defaulting on its accumulated $73 billion in debt.
That was ten years ago. Today, the island’s debt sits at $31 billion. Over the last ten years the island has slashed its debt by 58 percent. Few would argue debt reduction in itself is a bad thing.
How exactly it slashed the debt is the controversial, divisive, part.
That’s because ten years ago today President Barack Obama signed the PROMESA Act (short for the Puerto Rico Oversight, Management and Economic Stability Act) into law. The law created a federally appointed board to oversee the territory’s finances. The board has since then held veto power over many essential decisions on the U.S. territory. The elected government has to receive approval of the board in order to pass an annual budget.
Under the control of the board, government spending has been slashed and severe austerity measures have been imposed. About one-third of public schools have been closed. The healthcare system has fallen into crisis. The electrical system has been privatized, although blackouts remain an issue.
Much of the government’s revenue, in turn, is used to pay down the debt.
Members of the federal board are not elected. They are directly appointed by the President. The first board meeting was held thousands of miles away for the island, in the Financial District of Manhattan. Meetings are held in English, contrasted with the vast majority of Puerto Ricans who speak Spanish. To watch a meeting of the board – known colloquially as La Junta, which means “The Board” but carries all the negative connotations of the word in English – is to peer into the eyes of a governance structure that is uncomfortably colonial. Many Puerto Ricans have called for the abolishment of La Junta since inception, calling it is a colonial enterprise.
Perhaps in anticipating the backlash, President Obama nodded to tensions that La Junta could create when he signed the bill into law on June 30, 2016.
“The people of Puerto Rico need to know they are not forgotten, that they’re part of the American family," Obama said. "And Congress’ responsiveness to this issue — even though this is not a perfect bill — at least moves us in the right direction.”
The ten years of the board being in effect have overlapped with difficult periods in the island's history. Hurricanes Irma and Maria in 2017 left thousands dead and decimated the electrical grid. In the wake of the storms hundreds of thousands of residents fled the island to the U.S. mainland, especially to Florida. Then, a series of earthquakes further damaged island infrastructure in early 2020. That damage was followed by the COVID-19 pandemic, which greatly affected the tourism sector.
Yet things have more or less stabilized on the island. The population continues to decline, but migration has significantly slowed. Few are leaving. The island's economy is flat, not growing but also not shrinking.
WLRN spoke with Jose Caraballo Cueto, an economist at the University of Puerto Rico to mark the ten years of PROMESA being in effect. We spoke about the anniversary, what it means for the island, and if the island will ever have self-governance again.
The interview has been lightly edited for clarity.
WLRN: We're 10 years now into the existence of this board. How much progress has been made in reducing the island's debt and getting the island into better fiscal shape?
CARABALLO CUETO: In these 10 years, the debt from the central government was restructured. Not at the level that economists were expecting that it should be done, but there was a “haircut”, as the way we call it. It's a reduction in the principal and in the interest that is going to be paid for the next 20 to 40 years.
And in the case of the government corporations some of that debt was restructured and other [had] a sort of a refinancing. We are paying more, for instance, for water service — we're paying a higher rate to pay bondholders.
In the case of municipalities as well, the debt was refinanced. And yeah, in that case it wasn't the best thing to do. But at least for the central government, debt was reduced.
How is La Junta seen and understood on the island 10 years into this experiment?
Before the board was imposed on Puerto Rico, there were a couple of surveys in Puerto Rico [that asked], "What do you think about a federal commission coming to Puerto Rico?" And people said, "Well, those federal agents might put corrupt politicians in jail, so it might be a good thing." About 60% of the population — before the board was imposed — they were in favor of a federal board in Puerto Rico.
But just two years later, the vast majority of Puerto Ricans were opposing the Junta, and that was across the political spectrum. Very few people right now support La Junta.
This is like going back to the Spaniard colonialism where we didn't elect a governor here, they were just sending the people they wanted here. It's like going backward. Or — under U.S. rule. Before the 1950s, in Puerto Rico, we didn't elect our governor. It was someone imposed from the federal government. So we're, we're going backwards in that sense.
To be clear, the government of Puerto Rico cannot pass a budget without the sign-off of the board. Right?
Correct. The board that is in Puerto Rico has veto power, and they have used it quite widely. I remember one day that the local government approved a couple of labor rights for the private sector, and they, said: "We are opposed to that legislation." So they use their veto power for something that doesn't have to do anything with the government.
For instance, the privatization of the pier in Old San Juan. Many people that are [reading] have come to Puerto Rico to Old San Juan. So that pier used to belong to the government, and the local government was not in favor of that privatization. But the board said, "We're gonna do it anyway." So they are not just using veto power for fiscal issues that are related to taxes and government expenditures, but also about public policies.
And how have the spending cuts mandated by the board affected day-to-day life on the island?
Who received the largest cut? The University of Puerto Rico. They cut the budget about 50% and imposed really draconian austerity measures on the university. And the second entities that received a large cut were municipalities in Puerto Rico. Usually when there is a hurricane here, the municipalities are the ones that provide the first rescue services for the population.
And about one-third of the public schools in Puerto Rico were closed. They said that was going to help the government to obtain some savings, but when I look at the data, I don’t see any. We're spending more or less the same amount of money in the Department of Education, but with fewer schools.
In the time that the board has been operating in the last decade, we know from opinion polls and even the last gubernatorial election [results] in Puerto Rico in 2024, it looks like support for independence has gone up. Do you see a correlation between the board's presence on the island and the public sentiment shifting slightly in that way, in a pro-independence direction?
Many people were scared when I was a little kid and when I was a teenager. They were scared of independence. They say, "Oh, under independence, we're not gonna have continuous electricity. We're gonna have a lot of blackouts." Guess what? We're having a lot of blackouts right now. Under independence, a lot of people are going to migrate to the States. Guess what? That is already happening, especially before this reconstruction period.
So all of this idea that things that they said are gonna happen under independence are already occurring, and I think people, some people — not all of them, the vast majority of Puerto Ricans still want a relationship with the States — but some people say, 'Hey, I'm not scared any longer. I think that we should try new things. We need a new political relationship with the United States.'
What needs to happen to bring this era we're in now of direct federal oversight of Puerto Rico to a close?
Well, the same people that imposed the board here, they have to remove it. There's no way that Puerto Ricans can get rid of that. It was a federal law.
They said that to get rid of the board, the Puerto Rican government should go back to the credit market and at a reasonable interest rate, and the budget should be balanced for about four years. The two things already happened. But the board is putting their own terms to close the board. They're earning very good salaries, so I don't think anyone would like to close the entity that is paying you a high amount of money.
To that point, it's been reported that over $2 billion has been spent on consultants, lawyers and others helping this board restructure the debt. The federal government originally estimated less than $400 million in costs, but clearly some people are making money here. With that in mind, what are the incentives to wind the whole thing down, in your opinion? Or are there not incentives to wind it down?
I would like Latinos in the United States, and Puerto Ricans in particular, to use their political power in the States and say, 'Hey, Puerto Rico is still relevant.' That was done to Puerto Rico after Hurricane Maria. A lot of people lobbied for Puerto Rico in the federal government, and I think that has to be done again.
Otherwise, the board is not gonna let us here locally get rid of them. And even though the vast majority of the population rejects the board, and [Puerto Rican] politicians from all over the place, all political parties, are opposed to the board, I don't think it's gonna happen unless the government, unless Congress, says: 'Hey, this is the end of the board.'
