Report — From the February 2018 issue

Before the Deluge

How Washington sealed Puerto Rico’s fate

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In the summer of 2016, when Congress installed a financial control board to address Puerto Rico’s crippling debt, I traveled to San Juan, the capital. The island owed some $120 billion, and Wall Street was demanding action. On the news, President Obama announced his appointments to the Junta de Supervisión y Administración Financiera. “The task ahead for Puerto Rico is not an easy one,” he said. “But I am confident Puerto Rico is up to the challenge of stabilizing the fiscal situation, restoring growth, and building a better future for all Puerto Ricans.” Among locals, however, the control board was widely viewed as a transparent effort to satisfy mainland creditors — just the latest tool of colonialist plundering that went back generations.

All photographs from Puerto Rico by Christopher Gregory

Puerto Rico was given its name (“Rich Port”) for the gold in its rivers. When Spain ceded it to the United States, in 1898, the island was a strategic military outpost; Washington ensured its continued political subjugation and economic exploitation. As residents of a US territory, Puerto Ricans are American citizens, but they are barred from participating in presidential elections and have only a nonvoting representative in Congress. Over time, local activists mounted a fierce resistance, with sovereignty the ultimate aim. Those efforts have quieted in recent years, but when I made my trip, I’d been hearing that there were murmurs of serious mobilization.

Upon my arrival, all I found was a small encampment outside the gates of the federal court building in San Juan, the locus of the American government presence. Anticolonial slogans — fuck usa, doctrina del shock, usa out of pr — had been spray-painted along concrete barricades. A handful of protesters, most of them students, were marching in a circle, chanting and holding signs. But that was pretty much it. Police officers had parked their cruisers down the block and looked relaxed as they observed the goings-on.

Inside the courthouse, I met Douglas Leff, the special agent in charge of the FBI’s operations in Puerto Rico. For years, the local FBI office had served as a bulwark against independence movements, most of them peaceful, though there were some radical offshoots. In 1954, four nationalists stormed the US Capitol in Washington, shooting thirty rounds from semiautomatic weapons and wounding five members of Congress. For the next four decades, agents, in conjunction with Puerto Rican police, mounted an often vicious campaign to quell public unrest.

Lately, however, America’s priorities had evidently shifted from muscling out revolutionaries to collecting on investments: Leff’s background, unlike that of his predecessors, was in white-collar crime. His specialty was complex money laundering and asset forfeiture investigations. A genial and voluble talker with the build of a wrestler, he told me that he had been busy. “Puerto Rico today is like the equivalent of New York City in the Boss Tweed days,” he said. “The financial control board is looking to make sure money is spent responsibly,” he added. “We’re looking at money being stolen.”

Leff had been assigned to San Juan a year earlier, as Washington watched an economic death spiral of its own making. Starting in 1976, Congress had granted a tax exemption on income generated in Puerto Rico by US companies; this, along with low labor costs, made the island a desirable place for corporations, including many from the pharmaceutical industry, to invest. Puerto Rico became increasingly dependent on outside capital. In some cases, a single business employed an entire town; Barceloneta, about thirty-five miles west of San Juan, was at one point responsible for North America’s entire supply of Viagra.

Residents waiting in line for ice, Punta Santiago

But in 1996, Congress began to phase out the tax incentive. In 2006, when the last of its benefits were gone, many of the remaining companies bailed, and Puerto Rico fell into recession. The poverty rate rose to nearly 50 percent, about three times that of the states, and unemployment reached around 10 percent, more than two and a half times as high. The island has about the same number of residents as Connecticut, some 3.5 million, but less than half its GDP: $103 billion to Connecticut’s $263 billion. Over the past decade, as people left in search of jobs on the mainland, the population dropped by 10 percent.

At the same time, Puerto Rico’s government aimed to make up lost revenue by issuing bonds with triple tax exemptions (federal, state, local), in far greater volume than it had before. American financial firms gamely bought in, giving little consideration to the prospect of repayment down the line. From 2006 to 2015, through the sale of municipal bonds, the island’s debt nearly doubled. Default was certain, and the next year, with bond debt rising above $70 billion and about $50 billion in unfunded pension obligations, Puerto Rico declared a state of emergency. Congress passed a bill to create a legal framework for reducing the liability, including the establishment of the control board.

When Ricardo Rosselló, a thirty-eight-year-old graduate of MIT, was sworn in as governor the following January, he found himself mired in the largest municipal debt disaster in history. He released a five-year plan to pay back $800 million annually — which earned him the ire of creditors, who were expecting far more. Territories do not have the right, as local American governments do, to file for bankruptcy, but last May, Rosselló did essentially that, by petitioning a federal court. The control board gave its approval, believing that there was no alternative; both Rosselló and José Carrión, the board’s chairman, released statements meant to head off bankers’ outrage. Yet that would be impossible, as the case was without precedent: the amount of relief that Puerto Rico requested was around seven times what had been sought a few years earlier in Detroit.

The control board understood that its mandate to restructure Puerto Rico’s debt came with a directive to preserve bondholders’ assets. This would inevitably come at the loss of civil programs: among the early austerity measures was a 10 percent cut to pensions, the closure of nearly 200 public schools, a $450 million cut to the University of Puerto Rico’s budget, and the elimination of Christmas bonuses for government workers. A mandatory furlough was put in place for government employees; Rosselló vowed that he would overturn it, yet he had no power to do so. Outcry came from across the island, though Leff, for one, told me that he was not worried about an uprising — people seemed to lack the will.

By August, after spending $31 million (the bulk of it on unspecified “professional services”), the control board had done little to settle creditors’ claims, but had made clear to Puerto Ricans that they would be stripped of the last dregs of their public funds.

Then, on September 20, Hurricane Maria hit the shores.

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’s article “Beyond the Broken Window” appeared in the May 2015 issue of Harper’s Magazine.

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