Puerto Rico is not a banana republic. Yes, there are bent local officials with control over huge and not fully explained cash balances, a clumsy and overbearing colonial power, a large diaspora and tens of billions of defaulted debt.
But it is a commonwealth, not a republic. The effective meaning of the term “commonwealth” and the degree of its independence will eventually be defined by the US Supreme Court. Also, the locals grow and eat more plantains than bananas. So, no, not a banana republic.
Yet there was a tinge of the comedic cliché to the federal court “omnibus hearing” on Puerto Rico’s bankruptcy held on Wednesday. Martin Bienenstock, a lawyer representing the federal Financial Oversight and Management Board, announced that his client would submit a debt adjustment plan by the end of April. Such a plan could “cram down” the claims of various bondholders and unsecured creditors, as well as setting the course of the island’s reorganisation and recovery.
There are a few problems with this assertion. There is not yet a draft plan from the board, so the bitterly contending creditor and public policy groups have nothing to review and no amendments to offer. The adjustment plan should be based on a determination of Puerto Rico’s cash position and information on its economy.
But the commonwealth’s statistics are so notoriously unreliable that the federal government’s Bureau of Economic Analysis announced (gently) this month that it would have to independently develop data on consumer spending, investment, trade and so on so as to generate a number for gross domestic product. Eventually. Not this year.
There is also some disagreement on how much cash the commonwealth has at its disposal. Would that be $4.975bn, which is the number reported by the Puerto Rican Treasury? Or would it be more than $12bn, which is what some creditors and lawyers believe to be the real number? Do the island’s pensioners have a right to every dollar they were promised at some point? Or can the board impose across-the-board cuts?
And if Puerto Rico is the depopulating basket case that needs deep and immediate cuts to its outstanding debts, as well as tens of billions more from the mainland, how come the prices of most traded commonwealth debt are creeping up every week?
None of this suggests that an overarching restructuring for Puerto Rico’s finances that would be assembled in final form by the end of April would be adequately tethered to reality.
No one — no one — believes that the various court challenges to the supposedly governing Promesa law will be decided by the US Supreme Court until sometime next year, if not later.
Let us step back from the bankruptcy proceedings for some political perspective. Puerto Ricans on Puerto Rico are increasingly treated as colonial subjects, with more intrusive federal oversight of the police, electric company, health services and so on. Oddly, though, the commonwealth government has acted as if it is a fully independent entity, albeit one that depends on others to perform its basic duties.
While Puerto Ricans may be federal wards while on the island, once they arrive as new residents in the mainland US, elected politicians are ever more actively grovelling for their votes. Even though Puerto Rico residents cannot vote in presidential elections, the island is a required stopover for Democratic party hopefuls.
President Trump and Mike Mulvaney, his chief of staff, seem to think Puerto Rico’s government is full of crooks who should fork over some of their appropriated money to pay for the border wall. Other Republicans, though, have gotten the message. Senator Rick Scott, formerly governor of Florida and an otherwise staunch Trump supporter, is a strong advocate for Puerto Rico.
The presidential candidates and Mr Scott have looked at the same maps and voter numbers. Florida is the western front of American politics. National elections are decided there with precinct-by-precinct counts. Many Puerto Ricans who have relocated to the mainland moved to Florida, especially along the Orlando-centred “I-4 corridor”, which is the heart of swing-vote country.
Mr Scott hates handouts, as would any real Republican. This, though, went by the by when refugee Puerto Ricans turned up at Orlando airport after the hurricanes, where they were greeted with welcome baskets organised by Mr Scott himself. Some of them must have remembered, since Democratic hopes of taking Florida in 2018 were shattered.
Unless I have this all wrong, too many people have too much at stake for the Federal Oversight Management Board to have the final say on how Puerto Rico is refinanced. The Promesa law, which was agreed in an unholy pact among House Republicans, Senate Democrats and the Obama White House, incorporated too many contradictions.
Critically, Congress and the White House could not decide whether Puerto Rico was sovereign or dependent.
The commonwealth government’s elected officials and their associated blob of public servants and contractors have outmanoeuvred a fleet of opponents. Among the losers are hedge fund managers who thought they were smart, oversight board members who thought they were wise, and tough-guy feds who walked away from taking responsibility for fixing Puerto Rico’s problems.
Message to would-be empires: pause before acquiring colonies.
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