Sunday, December 20, 2015

Inside the Billion-Dollar Battle for Puerto Rico’s Future - NYTimes



Inside the Billion-Dollar Battle for Puerto Rico’s Future

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The money poured in by the millions, then by the hundreds of millions, and finally by the billions. Over weak coffee in a conference room in Midtown Manhattan last year, a half-dozen Puerto Rican officials exhaled: Their cash-starved island had persuaded some of the country’s biggest hedge funds to lend them more than $3 billion to keep the government afloat.
There were plenty of reasons for the hedge funds to like the deal: They would be earning, in effect, a 20 percent return. And under the island’s Constitution, Puerto Rico was required to pay back its debt before almost any other bills, whether for retirees’ health care or teachers’ salaries.
But within months, Puerto Rico was saying it had run out of money, and the relationship between the impoverished United States territory and its unlikely saviors fell apart, setting up an extraordinary political and financial fight over Puerto Rico’s future.
On the surface, it is a battle over whether Puerto Rico should be granted bankruptcy protections, putting at risk tens of billions of dollars from investors around the country. But it is also testing the power of an ascendant class of ultrarich Americans to steer the fate of a territory that is home to more than three million fellow citizens.
The investors with a stake in the outcome are some of the wealthiest people in America. Many of them have also taken on an outsize role in financing political campaigns in the aftermath of the Supreme Court’s 2010 Citizens United decision. They have put millions of dollars behind candidates of both parties, including Hillary Clinton and Jeb Bush. Some belong to a small circle of 158 familiesthat provided half of the early money for the 2016 presidential race.
To block proposals that would put their investments at risk, a coalition of hedge funds and financial firms has hired dozens of lobbyists, forged alliances with Tea Party activists and recruited so-called AstroTurf groups on the island to make their case. This approach — aggressive legal maneuvering, lobbying and the deployment of prodigious wealth — has proved successful overseas, in countries like Argentina and Greece, yielding billions in profit amid economic collapse.
The pressure has been widely felt. Senator Marco Rubio, whose state, Florida, has a large Puerto Rican population, expressed interest this year in sponsoring bankruptcy legislation for the island, says Senator Richard Blumenthal, Democrat of Connecticut. Mr. Rubio’s staff even joined in drafting the bill. But this summer, three weeks after a fund-raiser hosted by a hedge-fund founder, Mr. Rubio broke with those backing the measure. Bankruptcy, he said, should be considered only as a “last resort.”
And this past week, House Republican leaders said any financial rescue for Puerto Rico may not come until the end of March.
The fight over the island’s future is stretching from the oceanside neighborhoods of San Juan, where a growing number of wealthy investors and financial professionals have migrated in recent years to exploit generous tax breaks, to Capitol Hill. Their efforts are being closely watched by financial institutions, labor unions and policy makers on the mainland, where many ordinary investors own Puerto Rican bonds through mutual funds.
Some warn that Puerto Rico could be a test case for the rest of the country, paving the way for troubled states like Illinois to escape unsustainable debts.
Stephen J. Spencer, a restructuring expert representing Puerto Rico bondholders including some hedge funds, said letting the government renege on agreements with hedge funds and other investors would set a dangerous precedent, undermining the integrity of the bond market.
“It’s really a wealth transfer from the bondholders to the municipalities,” Mr. Spencer said.
Others fear a different precedent: A handful of wealthy investors, they argue, are trying to rewrite the social contract of an entire United States territory. Puerto Rican officials say they have already cut public services and slashed central government spending by a fifth to keep ahead of payments to the hedge funds and financiers.
“What they are doing, by getting all the resources for themselves, is undermining the viability of Puerto Rico as a commonwealth,” said Joseph E. Stiglitz, the Nobel Prize-winning economist. “They want their money now, and they want to get the rules set so that they can make money for the next 20 years.”

A Bet on Resurgence

Along Ashford Avenue in San Juan’s Condado district, newly renovated hotels gleam beside shops like Gucci and Cartier. Slightly to the west are new high-rise condominiums, known as WeCo, or West Condado, by an enterprising real estate agent originally from Manhattan. Still farther west, not far from the Capitol in Old San Juan, a new development named the Paseo Caribe makes a more explicit pitch to potential buyers: “The Puerto Rico Advantage: Sun, Sand and Zero Taxes,” the development’s website promises.
This was supposed to help solve Puerto Rico’s problems. The commonwealth has been in a depression for over a decade. Pharmaceutical companies and manufacturers have fled the island, followed by young Puerto Ricans looking for jobs, draining the island’s work force and tax base. Forty percent of the island’s residents live in poverty.
Three years ago, in a bid to lure financial services firms and other employers, Puerto Rico’s governor at that time, Luis Fortuño, a Republican, signed laws intended to turn the island into a domestic tax haven. Americans who relocated to Puerto Rico, spent at least half a year there and brought their company with them would pay no federal income or capital gains taxes.
Private-equity magnates, hedge funds and investment advisers began moving to the island. They settled in Condado and a handful of coastal enclaves like the Dorado Beach Resort, where the billionaire investor Toby Neugebauer, who provided $10 million to the presidential campaign of Senator Ted Cruz of Texas, bought a home.
John Paulson, the hedge fund investor and leading Republican donor, snapped up resort properties and fading resort hotels, betting on a resurgence. Puerto Rico, Mr. Paulson told an investor conference last year, would become “the Singapore of the Caribbean.” This spring, at his urging, the island even rented a booth at the hedge fund industry’s annual conference at the Bellagio casino in Las Vegas, where two attractive women pitched Puerto Rico’s charms to guests.
It was not the first time that Puerto Rico had turned to Wall Street for help. For decades, the island had been borrowing money to pay its bills. Puerto Rico’s bonds were particularly attractive to mutual funds because they were exempt from federal, state and local taxes in all 50 states. But in 2013, after the island’s general obligation bonds were downgraded, they caught the attention of a different sort of investor: hedge funds specializing in distressed assets.
These funds began buying up the debt at a steep discount, confident that this was a bet they could not lose. Not only were the bonds guaranteed by the Puerto Rican Constitution, but under a wrinkle of federal law, the island’s public corporations and municipalities — unlike those of the 50 states — do not have bankruptcy as a recourse.
When the investment bank Lazard hosted a discussion for investors on Puerto Rico in October 2013, so many people showed up that some had to stand. By the next spring, as the island’s economic situation worsened, virtually no one else was willing to lend to Puerto Rico.
A round of spending cuts and tax increases by Gov. Alejandro García Padilla, the Democrat who succeeded Mr. Fortuño, had not produced enough cash to keep up with the island’s earlier debts. A prospectus circulated for the March 2014 bond offering — which raised the $3.5 billion that Mr. García Padilla hoped would buy time for a recovery — warned in boldface type of “significant risks.”
Nevertheless, some of the biggest hedge funds kept buying, drawn by the promise of what was a 20 percent return, based on the interest rate coupled with the tax exemption. Mr. Paulson’s firm purchased bonds in March 2014, as did Appaloosa Management, founded by David Tepper; Marathon Asset Management; BlueMountain Capital Management; and Monarch Alternative Capital, said Puerto Rico officials involved in the sale.
The recovery never arrived. The $3.5 billion ran out. And Puerto Rico now owes its creditors in excess of $70 billion, a bigger debt load than all but two states. As much as a third of it is owed to hedge funds, according to some estimates.

The Bankruptcy Option

Early this year, with Puerto Rico’s economic outlook darkening, the island’s nonvoting member of the House of Representatives, Pedro R. Pierluisi, made what he thought was a modest proposal.
He introduced a bill that would change federal law to allow Puerto Rico’s struggling municipalities and public corporations, such as the island’s power authority, to declare bankruptcy. It would affect only about a third of the island’s debt, Mr. Pierluisi told Republican colleagues in Congress. It would also give Puerto Rico the same right as most states and leverage against creditors — so-called Chapter 9 bankruptcy protection. And it would cost taxpayers nothing.
Republicans in the House seemed receptive, as were some conservative groups. Even some of Puerto Rico’s other creditors liked the idea: If public corporations could shed some of their debt, it would free up more money to repay other bondholders. (The power authority’s financial troubles were being felt on the island, and not only by locals: Last summer, one of Mr. Paulson’s luxury hotels lost electricity, briefly forcing the use of a backup generator.)
Mr. Blumenthal was an enthusiastic supporter of the bill. Eager for a Republican co-sponsor, his staff turned to Mr. Rubio. One of three Latino members of the Senate, Mr. Rubio had won a large portion of Florida’s Puerto Rican vote in his 2010 race, and he was now about to announce his presidential campaign.
“We were given to understand by his staff that they were very interested in the bill and in fact were going to co-sponsor it,” Mr. Blumenthal said in an interview. Puerto Rico’s government officials also believed Mr. Rubio intended to support the legislation.
In the weeks that followed, the staffs of the two senators worked together on the legislation. “To give them credit, his team made contributions to the substance of the bill,” Mr. Blumenthal said.
But opponents were organizing against the measure, led by firms that owned debt from Puerto Rico’s power authority, according to federal lobbying records and other documents. Among them were two mutual funds — Oppenheimer Funds and Franklin Templeton — and hedge funds, some specializing in distressed debt: the D.E. Shaw Group and Angelo Gordon, along with Marathon and BlueMountain.
The hedge funds were among the largest in the world, with a combined tens of billions of dollars under management. Some of their founders and principals were also donating large sums in the presidential campaign. David E. Shaw of D.E. Shaw has given more than $800,000 to Mrs. Clinton and groups supporting her campaign. (Mrs. Clinton has called on Congress to pass the bill.) John Angelo of Angelo Gordon has put a quarter of a million dollars behind Gov. Chris Christie of New Jersey. And Richard Ronzetti, a partner at Marathon, has given $30,000 to groups linked to Mr. Bush.
Proponents of the bill mounted their own campaign, recruiting island businesses, bankruptcy experts and groups like Americans for Tax Reform, which argued that forgiving some of the debts would be better than plowing additional federal money into the island. Mr. García Padilla’s government hired SKD Knickerbocker, a public-affairs firm with close ties to the White House.
But the hedge funds hit upon a novel lobbying strategy: Mobilize conservative opposition by attacking Mr. Pierluisi’s bill — and by implication any broader bankruptcy attempt by the island — as a “bailout.” Because allowing the island to restructure its debt would cost their investors money, the funds argued, it was no different from the much-reviled taxpayer-funded bailout of the big banks after the financial crisis in 2008.
Puerto Rico could not now gain access to bankruptcy protections that it had not been entitled to when it borrowed the money, the funds argued. And, they suspected, there was still revenue hiding within the island’s opaque books, as well as cuts to be made to its oversize bureaucracy.
In a letter circulated to Republican staff members in February and obtained by The New York Times, representatives for BlueMountain, a $22 billion firm headquartered on New York’s Park Avenue, warned that the bill would put the bondholders at a disadvantage in any fight over Puerto Rico’s debt. Bankruptcy, they said, would inevitably prioritize those with pension claims over the island’s creditors, as had been the case when Detroit declared bankruptcy in 2013.
“Chapter 9 proceedings bail out Puerto Rico on the backs of the very bondholders Congress incentivized to invest in Puerto Rican municipal bonds,” they wrote.
Reaching out to lawmakers and to Republican presidential candidates, the financial firms quickly recruited allies. Tea Party groups, usually the harshest critics of Wall Street lobbyists, joined the fray.
The bill was “nothing but a backdoor, taxpayer-funded bailout for Puerto Rico,” Jenny Beth Martin, the national coordinator of the Tea Party Patriots, wrote in a March letter to the House Judiciary Committee. (Asked in an interview to identify the taxpayer funds at risk in the bill, Ms. Martin said, “I don’t know that I can answer that.” She added: “It’s more bailouts for bad decisions, expecting us to help take care of things that we should not be responsible for.”)
The pressure put Mr. Rubio in an awkward position. Tea Party activists had helped elect him in 2010, wealthy Wall Street donors had embraced him as a rising star in the years since, and he was now entering an intense Republican presidential primary campaign against better-credentialed conservatives.
When it came time to introduce the legislation on the Senate floor in July, Mr. Rubio held off. “We delayed the actual formal introduction of the bill while we were waiting for a final answer from Senator Rubio, and at some point, we said: ‘We need to go. Does he want to be a part of it, or does he want us to go ahead without him?’” Mr. Blumenthal recalled. “The answer we got was, go ahead without him. We never learned why.”
In September, on the eve of a campaign visit to Puerto Rico, Mr. Rubio abandoned the idea entirely In an essay on the website Medium and in Puerto Rico’s largest daily newspaper, he wrote that bankruptcy should be considered only as a “last resort” if the island first took “significant steps to fix its budget and economic mess,” echoing a refrain among Republicans in Congress.
Mr. Rubio’s move was welcome news for bondholders, some of whom have supported his presidential campaign. Monarch’s founder, Andrew Herenstein, co-hosted two fund-raisers for Mr. Rubio’s presidential bid, one over the summer in the Hamptons, the other in Manhattan in October. A spokesman for Mr. Herenstein declined to comment.
A spokesman for Mr. Rubio said his views on the legislation were unrelated to campaign donations. "Given Marco’s interest in Puerto Rico issues, our office did the due diligence of reviewing the bankruptcy bill, as well as other possible solutions, and meeting with stakeholders," he said. "Marco ultimately decided not to support it, because he believes Puerto Rico’s leaders should first pursue other fiscal reforms with Chapter 9 being a last resort."

Unsustainable

In June, 16 months after the hedge funds had come to Puerto Rico’s rescue, Governor García Padilla rattled trading floors around the country. Puerto Rico, he said, was in a “death spiral.” It could no longer pay its debts.
Only weeks earlier, his administration had hired as an adviser the retired judge who had overseen Detroit’s bankruptcy. Puerto Rico had also released a report by a former chief economist of the World Bank, warning that its debt load was unsustainable.
In October, amid the impasse over Mr. Pierluisi’s bill, the Obama administration weighed in with an even more ambitious plan. It proposed to create a new form of bankruptcy for United States territories, which would restructure all of the island’s debt — and put all of the financial firms’ investments at risk.
Relations between Mr. García Padilla and the hedge funds he had once courted soured, and the investors intensified their fight. Several more hedge funds hired Washington lobbyists. Puerto Rico, now looming as potentially the biggest government bankruptcy in American history, the lobbyists warned, could carve a path for cities and states around the country to escape their debts without reforming their governments.
Hedge funds commissioned their own economic study of the island’s finances, which concluded that further cuts to public spending, in particular to education and health care, would allow the island to keep up.
Some of the investors also tapped into an existing network of conservative nonprofit groups that in recent years has become a major conduit for moving large, anonymous contributions into lobbying and campaign activity.
This fall, a conservative group called the 60 Plus Association, based in Alexandria, Va., unleashed a wide-ranging media and lobbying effort against a restructuring and Governor García Padilla, whom it accused of “manufacturing a crisis” and trying to “extort” money from Congress.
The group cast the victims of a bankruptcy as ordinary Puerto Ricans and retirees who owned government-issued bonds. In November, 60 Plus recruited a group of these individuals, calling them “Main Street Bondholders,” for a news conference in San Juan.
“Do these folks look like vultures to you?” asked Matthew Kandrach, the vice president of 60 Plus, who apologized for not speaking Spanish. “I want the governor to see these faces.”
Exactly who the group was speaking for was unclear. Puerto Ricans own less than a fifth of the island’s debt, according to government officials. And while 60 Plus claims to represent millions of seniors, most of the group’s revenue comes from a few large, anonymous contributions, according to its most recent tax return.
Two Republicans briefed on the arrangement said 60 Plus had been recruited by the DCI Group, a Republican public relations firm that specializes in “AstroTurfing” — orchestrated lobbying campaigns designed to look like grass-roots efforts. DCI’s clients include the hedge fund BlueMountain Capital, which has been one of the most aggressive opponents of federal intervention in Puerto Rico.
DCI declined to comment. Asked about the arrangement, Mr. Kandrach responded: “When it helps us better serve and represent our seniors, we are proud to partner with firms such as DCI who offer valuable logistical support to getting our message out.”
Hedge fund executives and their allies also pressed their case in private meetings with key members of Congress and their staffs. The chairman of the Senate Finance Committee, Utah’s Orrin G. Hatch, met with a representative for funds owning general obligation bonds, as well as with Puerto Rico officials. Several firms with investments in Puerto Rico have been among the leading sources of donations to Mr. Hatch’s campaign and leadership PAC in recent years.

Tuesday, December 15, 2015

M.N.: "Were they not a part of this system of corruption and cozy cronyism themselves?" | NO ROBAR! | "The time for government cronyism that allows some to line their pockets with ill-gotten contracts at the expense of the many, is over. The time for public servants to trade their duty to represent the people of Puerto Rico in exchange for political appointments and gifts, is also over..." - FBI Arrests 10 in Puerto Rico Corruption Case | " It should be noted that, once again, it was the FBI, not the Puerto Rico Justice Department, doing the job... Puerto Rico’s credibility is a far greater threat to the future of the island’s economy and security than its US$73 billion debt. I repeat, the greatest threat to Puerto Rico’s economy is a lack of integrity among far too many ruling class politicians. This needs to stop, and now." - Frank Worley-Lopez | "If Puerto Rico’s fiscal house is to survive and be repaired, ongoing investment will be a key component of any long-term solution. Resolving issues with debtholders in a consensual manner, rather than through a forced Chapter 9 restructuring, will go a long way toward ensuring that funds at reasonable cost will be available to Puerto Rico and its agencies well into the future." - Filing For Bankruptcy Isn't The Right Solution For Puerto Rico - Forbes



"Puerto Rico today is the effect of the cause of years of negligence and theft of a massive scale of people, property, decency, freedom and Liberty... 
The island territory is the effect of of years of socialist indoctrination.  That indoctrination legitimizes theft of all things... 
One rule for Puerto Rican prosperity: thou shall not steal: Puerto Rico rarely rewards those who work hard and are honest. Honest people are viewed as useful idiots, decency is shunned; courtesy ridiculed and walked over... For Puerto Rico to pull itself out of the economic and moral abyss it currently finds itself, it need only apply one simple rule: thou shall not steal."



García Padilla denies foul play amid ongoing federal investigation - Caribbean Business:
"When asked about how the situation affects his political future and if the allegations are targeted at derailing his intentions to run for a second term, the governor said he hopes that is not the case. “The people who think they may pressure me into making a decision don’t know me,” García Padilla said."

Puerto Rico's economic migrants escape to US mainland in search of stability | World news | The Guardian:

"Any shifting sands in Washington’s political will to tackle the crisis could also reignite the debate over statehood. Rodriguez Rivera was among the 61% of voters who supported Puerto Rico becoming a state in a 2012 ballot, but Congress has yet to authorise a formal referendum.
He said he would continue to support a move away from Puerto Rico’s status as a dependent US territory as a lasting resolution to the financial crisis.
“Fifty-first state. It’s the only way,” he said."

FBI Arrests 10 in Puerto Rico Corruption Case | The Bond Buyer:

"Some United States Senators have already voiced skepticism about the ability of Puerto Rico's government to properly govern the island, said a municipal bond analyst who specializes in the territory. Today's arrests may make the U.S. Congress more likely to approve a control board to run Puerto Rico's affairs, said the analyst, who spoke anonymously, citing his company's policies.
If it turns out some of Puerto Rico's leaders were involved with the corruption, that would limit the leaders' abilities to negotiate on financial issues, the analyst said... 
"For decades now, political cronyism, favoritism, and corruption have robbed the people of Puerto Rico of the right to decent services and unbiased representation, including legally awarded government contracts," said U.S. attorney for the District of Puerto Rico Rosa Emilia Rodríguez Vélez. "The people of Puerto Rico foot the bill for the underhanded dealings detailed in the indictment.
"The time for government cronyism that allows some to line their pockets with ill-gotten contracts at the expense of the many, is over. The time for public servants to trade their duty to represent the people of Puerto Rico in exchange for political appointments and gifts, is also over," Rodríguez Vélez said."

As Puerto Rico Crisis Worsens, Congress Shows No Rush to Assist - Bloomberg Business



"Senator Chuck Grassley, the chairman of the judiciary committee, said the island’s strains are the result of years of fiscal mismanagement that wouldn’t be fixed with bankruptcy. He said no bill is imminent to assist Puerto Rico, which narrowly averted defaulting on bond payments due Tuesday...
“Chapter 9 cannot bring about financial rehabilitation. It does not increase economic growth or alter the fundamental fiscal trajectory,” Grassley said at the hearing. “In short, Chapter 9 cannot address the root causes of fiscal problems, but instead pushes them off to future generations.”"


Gov. García Padilla says he won't seek reelection

In a broadcast announcement Monday, Dec. 14, Gov. Alejandro García Padilla said ...



Puerto Rico U.S. attorney, FBI director crack down on government corruption scheme

The Federal Bureau of Investigation (FBI) on Thursday morning arrested businessm ...


From left, Senators Orrin G. Hatch, Chuck Grassley and Richard Blumenthal at a hearing earlier this month on Puerto Rico's fiscal problems. CreditPablo Martinez Monsivais/Associated Press

Senate Republicans Introduce Bill for Puerto Rico Relief - The New York Times:

"Under pressure to help Puerto Rico avoid a bond default on Jan. 1, Senate Republicans introduced a bill on Wednesday to extend several forms of assistance to the island.
But the measure stopped well short of embracing proposals from the Obama administration, which include giving Puerto Rico access to bankruptcy court.
The senators acted as Antonio Weiss, a counselor to Treasury Secretary Jacob J. Lew, warned that without congressional action, Puerto Rico risked “another lost decade.”
The Republicans’ measure would include up to $3 billion in cash relief, a payroll tax break for residents of the island and a new independent authority that could borrow for Puerto Rico — but with no taxpayer guarantee.
“Consistent with the views of Congress and the administration that there will be no ‘bailout’ ” of Puerto Rico, said a bill summary, “the full faith and credit of the United States is not pledged for the payment of debt obligations issued by the authority.”"



What Lawmakers Should Do Before Considering Puerto Rico Bailout:

"With over $42 billion in debt, a five percent decline in population over just five years, and only half of all working-age residents actually working, Puerto Rico faces a severe economic and financial crisis. Some have even alluded to a potential humanitarian crisis.
Attempting to ward off such a crisis, a number of Puerto Rican and mainland policymakers—the president included—have introduced plans to help address the commonwealth’s problems. Senators Orrin Hatch, R–Utah, Chuck Grassely, R–Iowa, and Lisa Murkowski, R–Alaska, offered their solution in the Puerto Rican Assistance Act of 2015.
The Assistance Act contains five main provisions... "

Misguided Plan For Puerto Rico Would Set Dangerous Precedent – Analysis | Eurasia Review:

"Puerto Rico faces an imminent financial crisis caused by decades of economically harmful policies, prolific government spending, and broken—if not corrupt—governance.
Claiming that this U.S. territory has no options on its own, the President and some Members of Congress have called for a bailout of Puerto Rico, including access to retroactive bankruptcy and other federal supports. This would set a dangerous and unaffordable precedent."

IB-plan-for-Puerto-Rico-chart-3-600

"Ironically, while Puerto Rico ranks only 57th in the World Bank Group’s “Ease of Doing Business” scores (compared to seventh for the U.S. mainland), the island received its highest scores—seventh of 189 countries—in the ability to resolve insolvencies and obtain credit.[14] While these rankings apply to private businesses, they nonetheless show that the island’s laws and systems provide a means for resolving unpayable debt." 

Frank Worley-Lopez

How to Put a Stop to Puerto Rico's Political Corruption

Time to Derail the Partisan-Money Train Once and for All:

"The most recent scandal involving money and politics hit Puerto Rico this last week. No, I don’t mean the accidental misreporting of two billion dollars in spending that no one noticed. I’m talking about the arrests of several top Popular Democratic Party (PDP) officials and operatives in a corruption scandal.

It should be noted that, once again, it was the FBI, not the Puerto Rico Justice Department, doing the job. 

These latest arrests follow a previous round of captures a few months ago involving the misuse of federal education funds. The unfortunate truth is that Puerto Rico has a long history of “political donations for contracts” and vice versa. It is emblematic of Puerto Rico’s overall credibility problem in the financial and political markets.

Puerto Rico’s credibility is a far greater threat to the future of the island’s economy and security than its US$73 billion debt. I repeat, the greatest threat to Puerto Rico’s economy is a lack of integrity among far too many ruling class politicians. 
This needs to stop, and now." 
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M.N.: I would respectfully comment and add to this a question: 
If this pervasive government corruption and other abuses were very well known (and they were) "for decades", as U.S. attorney Rodríguez Vélez put it, why did they come up only now, in the midst of acute financial crisis (actually a catastrophe), which inevitability was also very well known, especially lately, within last several years. Apparently, the general situation was not a secret at all neither to the local PR branch of the FBI nor to the U.S. attorney for PR; it is their job to know it, and if they did not, they are grossly negligent in performing their duties. And if they knew all this, why did they not act on it earlier, which might have prevented this catastrophe? 

And I venture a guess: Were they not a part of this system of corruption and cozy cronyism themselves? 

Whatever impulse and impetus for change came, it came from the central authorities, from the mainland, which would not put up with these abuses and nonsense. 
Mr. Worley-Lopez' thoughtful, as always article is appreciated, but I do not think that local "constitutional changes" would make much of a difference. New people, with completely different sets of mentalities and attitudes, that what will make a difference. Clean slate! 
This entrenched cesspool of thievery, deceit, hypocrisy, xenophobia, incompetence, corruption, mismanagement and socio-political perversions of self-centered egotistical and scared "elites", sitting on the top of the earthly paradise of natural and human beauty and serenity, which is today's Puerto Rico, needs a complete and deep revamping, including the local PR branch of the FBI (police, of course also and even more so, this goes without saying) and U.S. AG offices. The PR DOJ, apparently, as you rightly mentioned, is "just forget about it", it is a part of the problem than a part of the solution. 
It is too easy and too convenient to say that the debt is just "not payable"; in these circumstances "non-payment" is a form of another financial, social and political robbery, the form of protest and economical warfare against the "colonizing occupiers". Bankruptcy appears to be just a temporary, time buying, technical  band-aid solution (with materially and emotionally rewarding benefit of debt "haircuts") to this quite conscious, intentional, parasitic, exploitative, hostile and revengeful dependency. 
The deep and real, productive changes in economy and on all levels of governing, administration and management are only possible with the change in PR political status: obtaining a statehood, which is the only salvation for the Island and its people. They have to be on par, a proud star among other proud stars, a pearl in the crown, equal among equals. E pluribus unum. It will heal the wounds and will lift the spirits.  
Thus, it is the matter of political and cultural integration, unavoidable and inevitable. 

_________________________________________

This Is Why Puerto Rico Matters - Route Fifty:

"On the verge of a humanitarian crisis, the U.S. territory threatens social unrest that could reach the mainland...
The Puerto Rican economy is in near free-fall. Last year, 84,000 people left the island, and 1,000 more join them each week, most headed to the US mainland. The island is also experiencing a spike in crime: Since 2011, the amount of cocaine seized traveling through Puerto Rico, most bound for the mainland, quadrupled. Odds are the drug trafficking situation won’t improve if the Puerto Rican economy remains in shambles and it can’t pay its police officers."

Filing For Bankruptcy Isn't The Right Solution For Puerto Rico - Forbes

"If Puerto Rico’s fiscal house is to survive and be repaired, ongoing investment will be a key component of any long-term solution. Resolving issues with debtholders in a consensual manner, rather than through a forced Chapter 9 restructuring, will go a long way toward ensuring that funds at reasonable cost will be available to Puerto Rico and its agencies well into the future." 

An emergency financial control board for Puerto Rico - AEI:

"Statement for the United States Senate, Committee on the Judiciary
ABSTRACT: Congress should promptly create an Emergency Financial Control Board to assume oversight and control of the financial operations of the government of Puerto Rico, as Congress successfully did in 1995 with Washington, DC; as New York State, with federal encouragement, successfully did with the insolvent and defaulting New York City in 1975; and as the State of Michigan did with the appointment of an Emergency Manager for the insolvent City of Detroit in 2013. Such Boards have also been used [with success] in Cleveland (1980), Philadelphia (1991), and Springfield, Massachusetts (2004).
Under the United States Constitution, Congress has sovereignty over territories and the clear authority to create such a Control Board. In my opinion, with Puerto Rico’s severe and longstanding financial problems, Congress also has the responsibility to do so."


Clinton tells Puerto Rican voters 'we are a nation of immigrants' | Washington Examiner

Clinton Says Long-Term Solution Needed for Puerto Rico - Bloomberg Politics


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Recent (and not so recent) News Review

Hernandez Anaudi federal arrest for corruption in P. Rico

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"The dispute goes to the heart of Puerto Rico's efforts to restructure some $72 billion in debt. Puerto Rico wants a legal mechanism to allow it to impose payment reductions, or "haircuts," on some of its creditors, a prospect that has bondholders worried.
Several of Puerto Rico's creditors, as well as companies that insure its bonds, were involved in the city of Detroit's bankruptcy and have fresh recollections of the significant "haircuts" they took in that case.
Puerto Rico's governor, Alejandro Garcia Padilla, shocked investors in June when he said the island's debt, totaling $72 billion, was unpayable and required restructuring. The island has been in recession for nearly a decade."
"“The private sector, and not the government, should be the principal provider of social benefits,” García Padilla said. “We’re going to create a new entrepreneurial class...”

[M.N.: How?! Are you going to mold them out of clay, according to some biblical recipes or are you going to turn all your cocaine addicts into this "new entrepreneurial class"? Or maybe some political fundraisers, just like those who were recently arrested, would do?]

The bleak report views Puerto Rico’s problems as stemming from a stagnant economy with no growth. The island’s economy has contracted for most of the last decade. Though official data are not yet available, the report’s authors estimate that the economy continued to shrink by at least 1 percent in the 2015 fiscal year, which ended in June.
“[T]he drivers of economic decline have been years in the making: the problems are structural, not cyclical, and as such are not going away,” the report says.
Among its recommendations, the report calls for labor reform aimed at lowering workers’ wages, stating that current higher wages make local enterprise uncompetitive. The report also recommends reforming the state energy company, PREPA, which the authors call “inefficient” and “overstaffed,” and calls for federal reform of the Jones Act to help reduce the island’s transportation costs. The Jones Act, or the Merchant Marine Act of 1920, requires that shipping to and from Puerto Rico be conducted solely by U.S. ships, excluding international vessels from docking on island docks."

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M.N.: And this is the real, most delicious and almost unimaginable "pearl", deserving a long quote, from the most charming young states-lady. In essence, it is: "We owe you nothing. Nada. Zero. Zilch. It is you, who owes us. So you better come up with the reparations, and fast! Or else!!!" - not such an uncommon point of view. How would you disabuse them of this misconception of historical entitlement? I don't know. I guess it will take a lot of charm in return, with no guarantee of success whatsoever.  Let the money do the talking. Save your breath. 


"San Juan, Dec 8 (Prensa Latina) Tjhe U.S. Comngress has the moral obligation of compensating damages inflicted on the Puerto Rican people foro ver a century, demanded today ex Minister of the Interior, Ingrid Vila Biaggi.
â��For 117 years, we Puerto Ricans have endured unilateral decisions made (in Congress), without being taken into consideration and whose only purpose has been to benefit the big United States interestsâ�Ö, underlined the ex minister of the government of Alejandro García Padilla.

Imn this regard, she highlighted that the Treaty of Paris, through which Spain handed to the U.S. this Caribberan Island, â��in which we were not representedâ�Ö, and the Foraker laws of 1909 to organize the civil government of Puerto Rico and Jones of 1917, imposing the U.S. citizenship to Puerto Ricans â��in whose redaction we did not participateâ�Ö.

Vila Biaggi criticized the docility with which the Puerto Rican political leaders, including Governor Garcia Padilla and thed delegate before Congress, Pedro Pierluisi, were present in an audition of a Federal Senate commission last December 1 in Washington.

She said that the U.S. Congress must be faced with firmness and dignity, because they wonâ�Öt heed anyone on his knees.

'That which should be the center of discussion is the moral obligation of Congress with the people of Pujerto Rico and the compensation necessary that compensates the bullying and damages inflicted on our people during the last centuryâ�Ö, she said when denouncing the tone of the public audition.

The former official makes a recount of the imperial arrogance with which the United States has acted in Puerto Rico, which it invaded in 1898 and in 1952 converted in an Associated Free State, with limited powers for its internal management.

Vila Biaggi referred that in 1952 Washington tried to put make up in the colony, already unsustainable, allowing a Constitution that had to abide by Congress absolute powers 

and leaving us with a representative with voice but not vote." 

M.N.: Is the Comintern still around? She would make an excellent Secretary General! Hello, Ingrid! 

"Investigators have also questioned former government chief of staff Ingrid Vila Biaggi, Sen. Maritere Gonzalez, Public Affairs Secretary Jesus Manuel Ortiz and the CEO of AAA, Alberto Lazaro." 


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M.N.: Very boring leftist stuff (also) but with some interesting statistics.
M.N.: "Odious article". A lot of leftists love to write on Puerto Rican subjects. I guess, it is "inspiring". As long as it makes them happy, even if it has very little in common with reality.  
M.N.: Those three articles above are somewhat self-explanatory, with unsaid and unwritten addenda, and with too unpleasant (and unseemly) a subject to comment about. 

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