Debt Island: Wall Street Closes in on 40 Years of Profit at Puerto Rico’s Expense

Jan 10, 2019
5:50 pm

The following media release was shared with Latino Rebels on Thursday:

San Juan, PR (Thursday, January 10, 2019) — Puerto Rican activists presented a new report from Little Sis that denounces outrageous details of the COFINA agreement and called for a massive mobilization on January 16 against the dangerous precedents that this agreement sets for future restructuring plans.

The report, Debt Island: Wall Street Closes in on 40 Years of Profit at Puerto Rico’s Expense, was released just a day after creditors voted to approve the COFINA adjustment plan, a debt backed by sales tax or IVU as it is known locally. The agreement would set 40 years of payments to Wall Street bondholders, with substantial consequences for Puerto Rico. This agreement is scheduled to be submitted to federal Judge Laura Swain on January 16 for final approval.

The new report estimates that although in the COFINA agreement the principal of the debt is reduced by 32% to $ 11.9 billion, some hedge funds would be profiting in the range of hundreds of millions of dollars over 40 years, the deadline set by the agreement. Including interest, Puerto Ricans will have to pay more than double what they received, $32.3 billion over the next four decades. What’s worse, the potential for bondholders’ profits has been inflated by the Fiscal Control Board, thanks to a misuse of federal funds for the recovery of Hurricane Maria.

It further calls the COFINA debt restructuring process antidemocratic, since only bondholders are allowed to vote on this agreement, leaving out those who would end up paying the debt: the people of Puerto Rico.

During a press conference at the Colegio de Abogados y Abogadas (Puerto Rico’s law school) in San Juan, leaders from Little Sis, Frente Ciudadano por la Auditoría de la Deuda, VAMOS, Center for Popular Democracy among others, warned that COFINA restructuring plan is a sign of what is to come in the next debt adjustment plans and said that the mobilization of the people of Puerto Rico, including retirees who part of the voting process, is crucial to change the course of these agreements.

 

The list of participants also included, leaders from la Federación de Maestros de PR (Puerto Rico’s teachers union) and its retiree chapter, la Colectiva Feminista en Construcción, Mentes Puertorriqueñas en Acción, ¡Dignidad!, and the Puerto Rican Independence Party.

The groups reiterated the need for a massive demonstration on January 16 against the COFINA agreement and expressed:

Abner Dennis, Research Analyst for Puerto Rico, Public Accountability Initiative / Little Sis said: “The adjustment plan for COFINA represents the total subordination of the interests of the vast majority of the people of Puerto Rico to the profits of the Wall Street vulture funds, not only chaining the country to pay the IVU for the next 40 years, but that sets a precedent so that the next debt restructurings are also for the same obscene amount of time. The country must oppose this plan for COFINA and prepare itself for the next plan for the central government debt.”

José Rivera Santana, spokesperson for ¡DIGNIDAD! said: “The information revealed today is terrifying and is worse than what we had denounced from DIGNIDAD. The Fiscal Control Board, with the support and submission of the [Gov. Ricardo] Rosselló administration, has become pimps of the vulture funds at the cost of the suffering of our people. Therefore, it is imperative to mobilize and be present at the demonstration on January 16 in front of the federal building in La Chardón, expressing our rejection and outrage at the COFINA Adjustment Plan, ¡DIGNITY! ”

Justo Méndez Arámburu, Spokesperson, Frente Ciudadano por la Auditoría de la Deuda said: “The Citizen Front for Debt Audit (FCAD) has demanded an audit to the debt for more than three years and over 140 thousand citizens have joined this claim. Meanwhile, the Fiscal Control Board and the government of Puerto Rico have done their best to avoid the audit and now they intend to impose an unreasonable agreement with the COFINA vulture funds. This agreement is a robbery to the pocket of the Puerto Rican families because on top of all it is making us pay twice as much in usurious interests and as a people we must mobilize to avoid this robbery. That we will do next January 16 in front of the Federal Court in Hato Rey. ”

Julio López Varona, Center for Popular Democracy said: “This report only confirms what we already knew, that the millionaire bondholders on Wall Street will benefit the most. This we cannot allow. Fortunately, the people can take action and put pressure so that the COFINA agreement does not become the basis of the restructuring of the other debts that still have to be approved. We as leaders and organizers will be in charge of informing the population about the turbulent negotiations of the Board. The cost of these agreements is too high for Puerto Rican families. We must be present on January 16 onwards to fight against these agreements.”

Ana Irma Rivera Lassén, spokesperson, VAMOS said: “We can build a Puerto Rico that is sustainable, supportive, inclusive and equitable. But it is only possible if in the present we ensure the economic, social and cultural rights of future generations. The agreement of COFINA leaves us without tools and resources for several generations. VAMOS rejects the agreement and calls on all people in Puerto Rico to join in this rejection, either before the federal court on January 16 or from the space where they are located. ”

Paula Latortue Albino, spokesperson, Mentes Puertorriqueñas en Acción said: “The “debt island” report indicates alarming actions by the government and the Fiscal Control Board. The adjustment plan of COFINA threatens the opportunities of Puerto Ricans, especially the youngest ones, who day by day we see how the possibilities for social welfare and economic stability in our island are diminished. Mentes Puertorriqueñas will be present at the demonstration on January 16 and we urge the public to join our claim. ”

Some of the Key Points of the Report Include:

Puerto Ricans will be forced to pay for Wall Street’s profits over the course of 40 years. Payments will be made to service the debt for amounts that are indefensible and unsustainable, which will inevitably lead to extreme austerity measures. Massive layoffs, pension cuts and deep reductions to Medicaid and other essential services are the obvious consequences of these plans and their financial terms (this, not to mention a sales tax rate that will remain skyrocketing).

The Power of the People: The retirees will have the opportunity to show their opposition through their vote. Although the vote against from these minority voters will not invalidate a “yes” vote from the bondholders, it will put pressure on the process. In addition, both the House of Representatives and the Senate of Puerto Rico could play a role in voting against laws that propitiate another disastrous adjustment plan. Although the authority of the Fiscal Control Board has significantly undermined the power of the legislative bodies, it will need their consent to effect a major restructuring in the adjustment plan of the Commonwealth.

Some Puerto Ricans may make their voice count in the voting process, since any person with claims before the government –such as retired public employees– has the ability to vote. However, although there will be many, and possibly hundreds of thousands of voters who are not part of Wall Street, hedge funds have upper hand: the agreements can, technically, go ahead with approval by only one type of voter (such as, for example, a type of bondholders) through a process known as cramdown.

The debt negotiation of the central government of Puerto Rico is next. With a total of $ 13.2 billion (the debt is the second largest slice of the total debt), which mostly belongs to the general obligations bondholders (OG). Since the COFINA adjustment plan has set a precedent, it is likely that the government’s plan will also be for 40 years. This agreement will be very important because it will determine how much of the General Fund will pass into the hands of the bondholders. This implies that future funds for education, health and housing will be at the negotiating table. The more money they take to pay off the debt, the less money there will be for essential services.

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