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In Puerto Rico Debt Talks, Things Are Heating Up
Wall Street Journal It is shaping up as a hectic summer for investors in Puerto Rico's more than $70 billion in outstanding debt. On Monday, the U.S. commonwealth's publicly owned electric monopoly presented creditors with a restructuring plan, a month before a roughly ... Puerto Rico Debt Nears Two-Month High as Utility Meets CreditorsBloomberg UPDATE 2-Puerto Rico's PREPA plan calls for $2.3 bln, met with skepticismReuters Puerto Rico should pay its debtsThe Hill Utility Dive all 14 news articles » |
... viewpoints on the best way to face this issue. As we consider our options, we should look to our roots. In the Puerto Rico where I was brought up, we learned to keep our promises and pay our debts. I believe that we should rely on that ethos, those ...
Making threatening comments in rap lyrics on Facebook is not sufficient cause to determine that a real threat exists and sentencing someone to prison, the U.S. Supreme Court said Monday in its first ruling regarding freedom of expression on the social networks.
Puerto Rico-based medical university looks to answer physician shortage crisis
Inside Higher Ed In order to try to fix these problems, Ponce Health Sciences University in Puerto Rico and University Ventures announced today that they are partnering to train more bilingual and bicultural physicians. The goal of the partnership is to increase the ... |
MANHATTAN - Diego Rodriguez, the new head of the FBI's New York City office, was a public school teacher in Queens before he joined the bureau.
He recently quipped that when he resigned his teacher’s job to join the FBI in 1990, he felt like he was leaving a dangerous job for a safer one.
“I thought being a teacher was the most important job I could ever have,” Rodriguez said during an interview in his 28th floor office overlooking Lower Manhattan. “I loved it, like a true calling, because I had the opportunity to influence young people, at early ages, and have a real impact.”
But the FBI afforded him experiences and impact he never imagined inside the Board of Education.
Starting in New York, the bureau put his Spanish-language skills to work inside the Organized Crime and Drug Enforcement Task Force, where he worked as a SWAT team member targeting South American and Mexican drug trafficking and money launderers.
"The mission of the FBI really appealed to me," he recalled.
In 1997, he was transferred to San Juan, Puerto Rico, continuing the fight against drug traffickers but ultimately overseeing an operation that took down corrupt politicians. Four years later, he shifted to Miami to supervise targeting "High-Intensity" drug trafficking.
After 9/11, Rodriguez became the head of the bureau's first Joint Terrorism Task Force in West Palm Beach, Fla., not far from the flight training schools where several hijackers received instruction.
Eventually, he moved to FBI headquarters to help develop intelligence units around the country. Ultimately, he returned to New York in 2010 to run the criminal division handling financial crime, Wall Street insider traders, corrupt politicians, and terrorists -- and now as the office leader.
"I think I am in the right job at the right time," he said, pointing to his experience. "And I never imagined how much I would love this work."
His FBI career almost never happened.
The 50-year-old St. John's University grad — who was just a year old when his family emigrated from Colombia — says he did not give a moment’s thought to being a federal agent after growing up in Jamaica, Queens, in a Spanish-speaking household.
But after he became a teacher, he met a real-life agent who was a friend of a relative. The agent said the bureau was recruiting Spanish-speakers and suggested Rodriguez apply to take the FBI exam.
Under pressure, Rodriguez applied, albeit only half-heartedly. He was newly married, and recently moved to Flushing. He wanted to raise his family in Queens, just as his mother, a seamstress, and his father, a dental technician, had done.
“My mom used to sew all my clothes,” he recalled. “I was always nicely dressed.”
He knew an agent’s life was unsettled, and that they moved from city to city. “And I always thought an agent had to be a lawyer or accountant,” he said.
The call to take the FBI exam finally came, but Rodriguez said he was no longer interested. “I thought that was the end of it,” he recalled.
But that weekend he ran into the incredulous agent, who insisted he reconsider, which he did. The following Monday, he put on his “best suit,” took the subway into Manhattan, where he apologized to the woman who had called him.
She handed him a package of forms to fill out at home. He hand-delivered them back to her rather then rely on the mail. “I tell my children, if you really want something, you have to go out of your way and make sure you get it,” he said.
Rodriguez believes his background will help bridge gaps to the city’s various ethnic and racial communities, particularly Muslims.
“We have to show them we are regular people, and like them, we have family,” the father of four girls said. “My parents worked hard, and always said that living and working in America was the greatest blessing of all.”
In fact, when his mother applied for citizenship, he discovered that her years of threading needles had worn away flesh on tips of her fingers.
“We could not lift clean [finger]prints, which the Immigration and Naturalization Service requires before anyone can become a citizen,” Rodriguez recalled. “Even I tried and could not do it.”
“She was so disappointed when her dream was put off,” Rodriguez added.
The feds eventually decided that her agent son and others could file sworn affidavits vouching for her character — and his mom eventually became an American.
A few weeks ago, Rodriguez found himself representing his office's 2,500 employees at the 150th anniversary of the Department of Justice’s Eastern District in Brooklyn.
The event had special meaning for him.
Standing next to Charles Dunne, the head U.S. Marshal Service there, Rodriguez nudged him with an elbow.
“I was naturalized here,” he proudly declared.
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· · · ·
Old San Juan, the colonial gem of Puerto Rico’s capital San Juan, is tired but clinging on. Elsewhere on the island, the story is graver. Exhausted by a recession that has lasted for most of the past eight years and by talk of a possible default on government debt, Puerto Ricans are leaving in droves. Many who stay are jobless; doctors who haven’t been paid in months are downing their stethoscopes.
The pain that is Puerto Rico’s – and could soon be Wall Street’s if the debt crisis isn’t resolved – is poignant. Some blame its step-child relationship with America, neither a fully-fledged US state nor an independent nation. It hardly helps that Washington barely seems to care while at the same time it is suddenly lavishing attention on Cuba, its near neighbour to the west. The island has lost 20 per cent of its jobs since 2006. The unemployment rate stands at over 13 per cent. It’s no wonder people want to get out.
'This is untenable. It might force US Congress to finally confront the issue'
'This is untenable. It might force US Congress to finally confront the issue'
“People who graduate from the university go straight to the airport and never come back,” lamented Christopher Torres, 25, an activist studying computer engineering at the University of Puerto Rico, who recently led a student protest against proposed spending cuts. Some 144,000 Puerto Ricans decamped for the US last year and a higher number may depart in 2015. A White House official privately described it as the biggest population displacement ever seen outside of a war.
Among those packing their bags are disenchanted doctors. Victor Ramos, the president of the Physicians and Surgeons Association, noted in an interview that there are now only two paediatric neurosurgeons left on the island and also only two paediatric cardiac specialists. Of those one is 90 years old. “Last year we calculate that 361 doctors left the island, that’s one per day. This year we expect 500 or more.”
While the rest of the region and the US bounce back, the economic picture here could barely be more scary. Because successive governors, from either of its two main parties, have for years papered over budget deficits by borrowing, Puerto Rico now lies $73bn (£47bn) in debt, compared with the $18bn owed by Detroit when it declared bankruptcy. Moreover, while US laws allowed Detroit to get out of its hole by declaring bankruptcy they forbid Puerto Rico from doing the same.
The debt hole is worse than anyone is admitting. Beyond what it owes to bond investors, the government is also facing a $34bn gap in money that should have been paid into the public workers’ pension system. If you reckon that its obligations therefore exceed $100bn that then translates into a jaw-dropping $100,000 in debt for every working person on the island.
Where to stay in Puerto Rico
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“We are really in a very, very tight bind,” Sergio Marxuach, public policy director of the think-tank, the Centre for a New Economy, explained in his office above San Juan harbour. Barring a miraculous recovery in revenues, the administration will soon face a choice, he says, between servicing the debt or keeping the government going.
In April federal officials in Washington told San Juan not to expect a bailout from them. It’s why Mr Marxuach has that famous front page, “Ford to City: Drop Dead”, pinned to his wall. That was Gerald Ford brushing off a begging New York 40 years ago.
When the crunch will come exactly is anyone’s guess. The next big payment on debt, of $655m, is due on 1 July. Meanwhile, the current administration of Governor Alejandro Garcia Padilla has publicly warned it may run out of cash by 30 September. In its latest report, the Government Development Bank, its lending arm, which faces its own liquidity crisis, raised the possibility of a “moratorium” on debt servicing to maintain at least essential government services – an opaque way of saying default.
READ MORE: Test-driving the island's national cocktail
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“It’s highly likely, if you ask me,” said Mr Marxuach, adding that he has been warning since 2006 that this day would eventually come for Puerto Rico. That, he went on, would have consequences far beyond these shores. The fallout may be greatest for the debt insurers who would have to pass their pain on to all with higher premiums. Yields on Puerto Rican bonds have already surpassed those of Greece while almost half of all municipal mutual funds in the US hold Puerto Rican-issued bonds.
“In the short term, you might see a massive irrational selling-off of municipal bonds in the US,” he added. “There is the ‘run-to-safety’ effect that may happen though I wouldn’t expect it to last long."
Old San Juan is picturesque but the future looks bleak as experts describe a ‘fiscal black hole'
In hopes that disaster may yet be staved off, the Padilla administration last week presented a plan to raise sales tax from 7 per cent to 11.5 per cent to the island’s legislature. This was coupled with a new budget that includes spending cuts of nearly $700m, which would result in a closing of state schools in addition to the 150 closed in the past five years. That means more pain for everyone. The tax law was approved by the lower chamber on Thursday and now goes to the Senate.
Old San Juan is picturesque but the future looks bleak as experts describe a ‘fiscal black hole' In hopes that disaster may yet be staved off, the Padilla administration last week presented a plan to raise sales tax from 7 per cent to 11.5 per cent to the island’s legislature. This was coupled with a new budget that includes spending cuts of nearly $700m, which would result in a closing of state schools in addition to the 150 closed in the past five years. That means more pain for everyone. The tax law was approved by the lower chamber on Thursday and now goes to the Senate.
The prospect of higher tax revenues, depending on how the elevated rates affect an already sickly economy, may just lure investors back to buy yet more Puerto Rican debt, including debt for the decrepit electricity utility that is effectively in default on its $9bn debt already. But so far the only institutions showing interest in helping Puerto Rico are vulture hedge funds, who may be willing to take the risk of buying additional debt but at a cost that may prove too high for the island to accept.
Accumulating still more debt at an even higher price hardly addresses the systemic problems of the island. That includes a culture of tax cheating – a recent KPMG report found the island collects barely half the sale tax due to it – a huge underground economy that is entirely off the books, including a cocaine trafficking trade, and a government structure riddled with patronage and inefficiencies.
The medical abyss is especially grim. A block grant from Washington to cover the poor, through the Medicare system, that was meant to last until the end of 2019 could run out in late 2017. Dr Ramos says doctors have not been paid their fees for treating Medicare patients since March, while the insurance companies that disburse the funds will now only approve surgeries in life-threatening situations. In one case, a company recently declined to pay for the post-surgery drugs for a liver transplant patient. That man has missed his chance of a new liver. “This is genocide, this is horrible,” Dr Ramos said, predicting that unless the fees start being paid in the next month or two the entire system would “collapse”.
Among those despairing of the government’s decision to resort to still higher taxes and potentially more borrowing is Martha Duperray, a journalist on the island and contributing editor of Caribbean Business. “You keep on hitting the people to pay for these problems and the government never gets hit. People are hurting. This means people who go to the supermarket once a week will now go once a month.” Half seriously, she offers: “Puerto Rico needs a benevolent dictator.”
What it surely needs is an end to its current limbo political status, suggested Kenneth McClintock, who in the past decade has served both as the President of the Senate here and as a Secretary of State. To him gaining statehood is the only solution. “Seeking statehood is the only way that Puerto Rico can expect to find the tools necessary to crawl out of the hole we are in. It’s the only scenario where Puerto Rico will cease to be in this fiscal black hole.”
In a 2012 referendum, the people narrowly voted for statehood but nothing has happened since. That, Mr McClintock asserted, means that “the US is governing Puerto Rico without the consent of the governed”.
If the island does default it would be on all the front pages of America and of Europe, Mr Marxuach noted. “Perhaps the only good thing to come out of that is it may force Puerto Rico to reach a decision on its future political status and it might force the US Congress to confront the issue finally.” Because, he says, the current arrangement between the US and Puerto Rico is “untenable and unsustainable”.
As for Mr Torres, who is now organising a general strike on campus to protest against the new sales tax hikes, he can’t wait. As soon as his thesis is done, he means to clear off to California.
$655m Next debt repayment due on 1 July
$73bn Puerto Rico’s current debt
$34bn Shortfall on payments to public pensions
361 Doctors left the island last year
150 State schools closed in last five years
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Moody’s has cut Puerto Rico’s credit rating deeper into junk territory despite the island’s government this week proposing an
austere new budget with severe spending cuts to resurrect a funding deal with its hedge fund creditors.
The US commonwealth’s government late on Wednesday presented a budget with $674m of spending cuts for the next financial year, which included closing almost 100 schools.
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Governor Alejandro Garcia Padilla is separately attempting to push through a sharp sales tax increase that he hopes will salvage a deal with hedge funds to issue a new $3bn bond and keep the country financed for another year.
However, the promise of austerity failed to assuage Moody’s concerns over Puerto Rico’s creditworthiness, and the rating agency on Thursday elected to trim the island’s grade by another notch to Caa2, deep into levels often known as “junk”.
Moody’s also slashed the rating of Puerto Rico’s Government Development Bank (GDB) — which in effect serves as the island’s central bank and finance ministry — by three notches to Ca, the second-lowest possible credit rating. Puerto Rico’s government and state agencies in total owe about $73bn directly and indirectly, and Thursday’s downgrades affect about $55bn of bonds.
The rating agency said that it did not believe that the US territory would be able to complete its planned bond sale before the end of its current fiscal year at the end of June, leaving the GDB perilously low on cash and spurring drastic money-saving tactics by the government.
“Puerto Rico and the GDB will be forced to pursue cash-conservation measures such as seeking to defer principal repayment to holders of bonds that are not protected by the strongest revenue pledges or constitutional provisions, such as GDB notes and the government’s subject-to-appropriation debt,” Moody’s said in the statement.
The rating agency kept a negative outlook on Puerto Rico’s rating, arguing that the economic deterioration and evaporating reserves “may further heighten default probabilities and further reduce bondholder recovery prospects in coming months”.
Puerto Rico’s bonds have rallied in recent weeks on expectations that the governor would persuade the legislature to lift its sales tax from 7 per cent to 11.5 per cent, a condition demanded by hedge funds to back a new bond sale backed by oil revenues.
The most frequently traded Puerto Rican government bond, a $3.5bn security maturing in 2035 that was bought mostly by hedge funds, climbed to 82 cents on the dollar on Thursday, up from a low of 77.6 cents around the turn of the month.
However, municipal bond investors — Puerto Rico’s traditional lenders — have fled as the island’s finances and economy have wilted, and some say that even another bond sale will not be enough to avert a broad restructuring of its debts eventually.
“If they get a bond deal done that will buy them time, but that’s it,” says one muni bond analyst. “The ability to solve this depends on both political parties coming together and cutting spending dramatically, but the politics are corrosive.”
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SAN JUAN, Puerto Rico (AP) — Nearly two dozen people have been evacuated from their condominiums in Puerto Rico's capital after a water tank collapsed through a residential building's roof.
There were no immediate reports of any deaths or significant injuries at the condominium complex in the wealthy Miramar neighborhood of San Juan.
Firefighters say roughly 20 people were left temporarily homeless after Sunday's incident.
Firefighters and engineers are trying to brace the building to prevent further collapse to the structure while utility workers check gas lines.
Copyright 2015 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
There were no immediate reports of any deaths or significant injuries at the condominium complex in the wealthy Miramar neighborhood of San Juan.
Firefighters say roughly 20 people were left temporarily homeless after Sunday's incident.
Firefighters and engineers are trying to brace the building to prevent further collapse to the structure while utility workers check gas lines.
Copyright 2015 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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Kevin Blanford couldn't take his wife with him on an April trip to Puerto Rico. But after photos from his "miserable" trip went viral, Puerto Rico offered Blanford and his family to come back and have a much happier vacation.
After photos from his "miserable" trip to Puerto Rico went viral in April, Kevin Blanford was invited to return with his wife and 8-month-old daughter. Imgur
In April, Blanford had posted photos of a recent trip he had taken to Puerto Rico, with each image featuring him making a sad or expressionless face. Blanford had won a free trip but couldn't take his Bonnie wife who was looking over their 7-month-old daughter Gwyneth Paige back home.
Blanford's photos quickly went viral
and even caught the eye of Puerto Rico natives. "Basically what happened was the hotel and the ad agency for tourism saw the post and offered me a trip back," Blanford told ABC. "They just wanted me to smile this time. So that's what we did!"
In the new pictures from his trip,
posted to Reddit on Thursday
, Blanford and his family can be seen revisiting the same locations on his "miserable" trip. This time, however, Blanford and his family are nothing but smiles.
The Puerto Rico Tourism Twitter account also shared images of Blanford and his family having fun in the tropical sun.
PHOTOS: Man documents 'miserable' vacation to Puerto Rico
Kevin Blanford wanted to make sure his wife knew he wasn't having any fun in Puerto Rico without her so he documented every "miserable" moment of the trip. Kevin Blanford/Reddit
Throngs of students hit the streets of San Juan, Puerto Rico, last week to protest Gov. Alejandro García Padilla's proposal to cut some $166 million from the budget for the island's public university system -- roughly one-fifth of the system's total funds. The cuts to the University of Puerto Rico system were some of the most controversial of a series of deep cuts envisioned in one of the most austere budget proposals the country has seen in recent years.
Despite the large size of the protests and the role they played in prodding the García Padilla administration to rethink the budget cuts, the U.S. mainland media largely ignored the rallies and the austerity debate that prompted them.
Here are five reasons every American should care about what's going on right now in Puerto Rico.
Puerto Ricans are Americans.
People wave flags as U.S. President Barack Obama's motorcade drives past during a visit to San Juan, Puerto Rico, June 14, 2011.(SAUL LOEB/AFP/Getty Images)
You might not guess from the amount of media attention the island gets on the mainland, or from how often the U.S. media incorrectly refers to Puerto Ricans living in the states as "immigrants," but everyone born on the island is an American citizen and holds a U.S. passport. However, the 3.7 million currently living on the island aren't eligible to vote for president -- just those who move to one of the 50 U.S. states.
Puerto Rico matters for 2016.
In this April 28, 2015, file photo, former Florida Gov. Jeb Bush speaks during a town hall meeting with Puerto Rico's Republican Party in Bayamon, Puerto Rico.
Puerto Ricans living on the island may not be able to vote for president, but how the presidential hopefuls approach the island's situation could play a role in the 2016 election. In one of the first moves of his still-unannounced presidential bid, former Florida Gov. Jeb Bush visited the island last month on a fundraising trip. Democratic presidential hopeful Hillary Clinton also has plans to visit this year, according to Puerto Rican daily El Nuevo Día.
Though island residents can't vote for president, visiting the island is widely viewed as a way to shore up support from the increasingly powerful Latino vote. Additionally, nearly 5 million Puerto Rican-born and -descended people live in one of the 50 U.S. states, and they enjoy the right to vote. An increasing number of them are concentrated in the swing state of Florida.
Americans on the mainland hold Puerto Rico's debt.
Part of the reason behind the García Padilla administration's proposed budget cuts is that the island's government has been borrowing for years to make up for deficits in a shrinking economy. The island's economy contracted for eight consecutive years, from 2006 to 2013, according to World Bank data. Last year, Puerto Rico sold some $3.5 billion in municipal bonds so risky they've been given junk status -- the largest such offering in history, according to Bloomberg. Puerto Rico now faces the looming possibility of default.
Those bonds are widely traded in U.S. markets, and a large number of the investors who hold them live on the U.S. mainland.
It reflects the wider evisceration of the American middle class.
A demonstrator paints a sign on the street that reads in Spanish "Let the rich pay" during a protest outside the hotel where former Gov. Luis Fortuno meets with foreign investors in Fajardo, eastern Puerto Rico, Oct. 22, 2009.
While Puerto Rico faces more serious economic problems than the 50 U.S. states, some of the trends would seem similar to many Americans: contraction of the manufacturing industry, weaker job security, difficulty reversing unemployment, fewer public services and middle class decline.
Nevertheless, some conservatives on the national stage have touted the island's push towards austerity as a model for making small government work.
Washington could do more to help.
U.S. President Barack Obama eats a 'medianoche' sandwich while eating lunch with Alejandro Garcia Padilla, a Puerto Rican senator, at Kasalta Bakery during a visit to San Juan, Puerto Rico, June 14, 2011. (SAUL LOEB/AFP/Getty Images)
The Obama administration has tried to keep Puerto Rico's economic crisis at arm's length. U.S.Treasury officials and the White House have publicly ruled out aid packages to keep the island's government from defaulting on its debt. Meanwhile, proposed legislation that would allow Puerto Rican public corporations and municipal governments to declare bankruptcy -- a right enjoyed by the cities and towns of all 50 states -- has yet to gain traction.
"From a bankruptcy policy perspective, I do not believe that the current exclusion ever made sense; it certainly doesn't make any sense now," former Puerto Rican Gov. Luis Fortuño wrote in an article last month for The Hill. "Puerto Rican bonds are heavily traded in the U.S. municipal bond market, so the legal rules should be the same in Puerto Rico as they are in the 50 states."
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· · · · · · · · · ·
Puerto Rico has been laid low for nearly a decade by crippling debt and a near-perpetual recession that has triggered a migration to the U.S. mainland unmatched since the 1950s. Now, a growing number of people on the island worry that another crisis is looming: the collapse of the island’s health-care system.
More than 2 million patients—roughly 60 percent of Puerto Rico’s population—rely on Medicare, Medicare Advantage or Medicaid to pay for their health care. Doctors practicing in Puerto Rico are forced to get by with much smaller Medicare and Medicaid reimbursement rates than those received by their counterparts on the mainland. The difference stems from a formula that Puerto Rico advocates say underestimates commercial rents, while not fully accounting for high costs of malpractice insurance, medical equipment and utilities.
The issue has contributed to a steady drain of doctors as advocates say nearly 400 of the island’s estimated 11,000 physicians leave the island every year. Now, the funding gap--and exodus--are certain to grow larger as the Center for Medicaid and Medicare services is on the verge of implementing an 11 percent cut in Medicare Advantage reimbursements because of the rate formula, even as the rates on the mainland are slated to go up an average of 3 percent.
The reductions will cost the island’s health-care system an estimated $500 million. Meanwhile, the island’s Medicaid program is propped up for now by a federal grant that is set to expire in the next two years. If that grant is not renewed, cash-strapped Puerto Rico will have to come up with $1.8 billion by 2018, or drastically reduce Medicaid services. At the same time, the island’s cash crunch has left it short on the money it needs to pay for its share of Medicare and Medicaid.
“This is a whopper of a problem,” said Dennis Rivera, chairman of the newly constituted Puerto Rico Healthcare Crisis Coalition. “We are facing a catastrophic health-care situation.”
With health care accounting for 20 percent of Puerto Rico’s economic activity, the change will only deepen the island’s long running economic crisis, advocates fear. The island is $73 billion in debt, saddled with unsustainably high utility rates, and several of its large state-run corporations that oversee things from highways to power generation are on the verge of defaulting on their loan obligations.
Advocates are calling on the federal government to increase reimbursement rates and to step in with special financing to help Puerto Rico avert the health care crisis. So far, however, their calls have gone unheeded.
“Puerto Rico can no longer bear the burden of inequality from unconscionable federal cuts to essential services,” Rep. Nydia Velazquez, (D-N.Y.), who closely follows issues in Puerto Rico, said in a statement. “Access to quality healthcare is not a privilege; it is a right for every American. Puerto Rico is simply asking to be treated with the fairness and dignity that all Americans deserve.”
Michael A. Fletcher is a national economics correspondent, writing about unemployment, state and municipal debt, the evolving job market and the auto industry.
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For the hedge funds and money managers that pick over the credit market’s scrap heaps, Puerto Rico has become the new ground zero.
Some of the same distressed-debt buyers that started battling seven years ago over the remains of Lehman Brothers Holdings Inc. are now girding for a rematch over the U.S. territory’s $72 billion of debt. That’s likely to pit investors such as Fir Tree Partners -- among firms that snapped up $4.5 billion of bonds the island has to pay before other obligations -- against creditors including Angelo Gordon & Co. and Knighthead Capital Management. Those firms own a majority of the more than $8 billion of debt owed by the U.S. territory’s power agency.
The conflict is heating up after the Puerto Rico Electric Power Authority, known as Prepa, met with the financial adviser to its creditors Monday to restart talks toward a restructuring that may ask bondholders to take a loss or wait longer to be repaid. Hedge funds now hold as much as 30 percent of the obligations of Puerto Rico and its agencies, Barclays Plc municipal-debt strategist Mikhail Foux estimates.
“It’s extremely disorderly and nasty,” said Joseph Rosenblum, director of municipal credit research at AllianceBernstein Holding LP. This “messy approach to trying to resolve something with no clear structure or guidance doesn’t give a bondholder any kind of confidence,” he said.
Few Opportunities
The reason so much hedge-fund money is riding on the island is simple: an increasing number of distressed-debt funds are chasing a declining number of opportunities. Little wreckage remains from the 2008 financial crisis, and six years of central-bank stimulus has kept tomorrow’s bankrupt companies flush with cash.
Two of the biggest borrowers that teetered after the financial crisis, Energy Future Holdings Corp., the Texas power producer formerly known as TXU Corp., and the main operating unit of Caesars Entertainment Corp., are now in the hands of bankruptcy judges.
The face value of bonds in Bank of America Merrill Lynch’s U.S. Distressed High Yield Index of corporate securities has declined to $104.6 billion from as high as $644.1 billion at the height of the 2008 financial crisis.
New Funds
At the same time, hedge-fund managers started trading 24 new distressed-credit funds last year, the highest number since 2010, according to data provider Preqin. Five have started this year, with total assets growing to $150.3 billion.
“There are not any obvious large distressed situations, such as a Caesars or a Lehman Brothers or TXU, coming down the pike,” said Stephen Ketchum, chief executive officer of the $6.5 billion hedge-fund firm Sound Point Capital Management, among investors in the island. “We were comparing Puerto Rico to some of the worst sovereign debt situations in history and it just didn’t make sense to us, especially since Puerto Rico is a U.S. territory.”
Prices on Puerto Rico’s general-obligation bonds plunged to as low as 55 cents on the dollar last July, data compiled by Bloomberg show. They’ve since rebounded to about 68 cents. Bonds sold by Prepa reached 33 cents a year ago, and have since climbed to 56.
Offering a Chance
While the hedge funds are teeing up for a fight, their money is giving the territory a chance at getting out of its mess as traditional buyers like mutual funds flee.
“The capital from the distressed funds has given the current government at least a chance to enact the agenda and balance the budget in the short term,” said Aaron Rosen, a principal at Archview Investment Group, a Stamford, Conn.-based hedge-fund that manages about $900 million and invests in some smaller Puerto Rico agencies.
Each of the funds is wagering in one way or another that Puerto Rico and its public agencies can raise revenue and cut costs before the Government Development Bank, lender to the commonwealth and municipalities, runs through its cash.
Angelo Gordon, Knighthead, D.E. Shaw & Co. and units of Goldman Sachs Group Inc. are among 11 firms that agreed to delay a default on nearly $5 billion of Prepa’s debt until June 4. In a restructuringplan presented to creditors Monday, the power agency said it can’t support its debt service through existing cash flow and recommended at least $2.3 billion of investment to modernize operations and restore its finances. Bondholders said the proposal is a basis for further talks, while calling some aspects “unworkable.”
‘Constructive Solution’
“While elements of the plan were positive from our perspective, there were also aspects that were unworkable and will require further negotiation,” Stephen Spencer, a managing director at adviser Houlihan Lokey, said in an e-mailed statement.
Knighthead’s Tom Wagner said in a statement that the firm continues to “believe that a constructive solution can be found that will result in Prepa receiving the capital funding needed to modernize its infrastructure” in a way that provides “more reliable service to consumers.”
Spokesmen for D.E. Shaw and Goldman Sachs declined to comment while a representative of Angelo Gordon didn’t immediately provide comment.
Familiar Foes
During Lehman’s bankruptcy, Angelo Gordon, Knighthead, D.E. Shaw and Goldman were among investors that railed against a restructuring plan advocated by a group of creditors led in part by Fir Tree, court records show.
Fir Tree, the New York-based investment firm founded by Jeffrey Tannenbaum, aligned with Monarch Alternative Capital and Stone Lion Capital Partners in other parts of the Lehman bankruptcy, the records show.
Fir Tree is now helping to lead a group of 35 firms that mostly own general obligation bonds. They also includes Monarch and Stone Lion.
Representatives for Monarch and Stone Lion didn’t respond to telephone and e-mail messages while a spokesman for Fir Tree declined to comment.
If the commonwealth can’t come to an agreement with that group on a planned sale of $2.9 billion of new debt backed by oil taxes, the GDB will run out of money by Sept. 30, according to the commonwealth’s latest quarterly filing on May 7.
“We just blew the whistle of the first quarter of what will be a full game in Puerto Rico,” Michael Lipsky, a partner at MatlinPatterson Global Advisers, said in an interview at his New York office. Matlin, which manages $5.8 billion, is invested across Puerto Rico debt, Lipsky said. “The cadence will quicken.”
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Nearly two dozen people have been evacuated from their condominiums in Puerto Rico's capital after a water tank collapsed through a residential building's roof.
There were no immediate reports of any deaths or significant injuries at the condominium complex in the wealthy Miramar neighborhood of San Juan.
Firefighters say roughly 20 people were left temporarily homeless after Sunday's incident.
Firefighters and engineers are trying to brace the building to prevent further collapse to the structure while utility workers check gas lines.
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Puerto Rico is facing well-publicized financial stress. Despite a recent rally, bond prices have declined over the last year and yields have jumped. Is it time to buy Puerto Rico’s bonds? Our answer is no.
A Budget in Sight
Puerto Rico now confronts an estimated deficit of approximately $1.5 billion in its next fiscal year on a general fund budget of less than $10 billion. A big chunk of the shortfall is due to increased annual debt service payments. To solve the problem, the Commonwealth’s House and Senate just passed legislation that will increase the sales tax from 7% to 11.5% on July 1, the start of its new fiscal year, and then replace it with a value-added tax (VAT) on goods and services by April 1, 2016. The move to a VAT should improve tax-collection compliance. These tax changes, coupled with cuts in government spending, should largely address next year’s budget shortfall.
Immediate Liquidity Needs
Despite having raised more than $3 billion last year by selling bonds, Puerto Rico is running out of money quickly and has stated it may need to implement” a moratorium on the payment of debt service or debt adjustment.” With a budget in sight, and many investors willing to extend Puerto Rico credit, albeit at high rates, we expect their current liquidity crisis to be averted. But their financial and economic struggles will continue.
Economy in Recession
Puerto Rico has many strengths: an educated workforce, an established legal system, and financial support from the US in the form of Social Security, Medicare and Medicaid. But its economy has been in recession since 2006, when US tax breaks for US companies located in Puerto Rico expired. Manufacturing still represents half of the Puerto Rico economy, but the sector is in decline.
Nearly a quarter of those employed in the Commonwealth work for the government—another sector that will likely shrink as spending is cut to help balance the budget. And while the small tourism industry is growing, at just 8% of the economy, it can’t grow quickly enough to offset the economic decline in other areas, at least not in the short-to-intermediate term.
Puerto Rico’s unemployment rate is 12% and almost half of the population is living below the poverty line. So it’s not surprising that Puerto Rico’s citizens are looking for better opportunities elsewhere—the population has declined an average of 0.8% per year over the last decade. A shrinking population limits potential economic growth and increases the debt burden per person.
Financial Problems Ahead
Raising taxes, cutting spending and adding expensive new debt to its balance sheet are Puerto Rico’s only options to avoid default in the short run. But these actions will bring disaster over the longer term unless the Commonwealth finds a way to jump-start its economy.
Unfortunately, we don’t see any engine of growth; what we do see are its growing financial commitments to health-care, pensions and debt service. In fact, when a one-time federal appropriation for health-care expenses is exhausted in fiscal year 2018, our projection of Puerto Rico’s budget deficit quickly exceeds the level of its debt service for all forms of government debt by fiscal year 2019. Thus, recovery rates for bondholders are likely to be lower than current prices suggest, and the loss in price could be greater, in our view, than the coupon income earned over the period.
Avoid at Current Prices
Could the federal government provide more money to help Puerto Rico balance its budget and pay its debts? Yes, but it’s not likely. Rather, the US Congress is considering a bill that would allow Puerto Rico’s government agencies to file for municipal bankruptcy.
For all the above reasons, we absolutely do not believe Puerto Rico debt belongs in investment grade portfolios. And we expect prices to begin to decline again. At significantly lower prices, the expected returns of the Commonwealth’s debt would turn positive, in our estimation. And, at that time, Puerto Rico bonds could be a buy for high-yield investors.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.
Puerto Rico Bonds
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Imagine a small U.S. city that owns and operates its own electric power company. The business has been poorly run for decades. But it’s backed by the government, so it’s been able to borrow huge sums of money.
Much of the borrowing was done via a set of special tax-exempt bonds, with contracts that spell out exactly what the power company can and can’t do in the event it gets into financial trouble.
While the company can use a local-court receivership process, it cannot use the U.S. bankruptcy code.
After years of mounting difficulties, the power company finds itself in severe financial distress. So instead of sticking to its bond agreement, the company petitions the government to change the local law.
The government complies, enacting a new law that allows the company to break its agreement. The bondholders respond by taking the company to court. Eventually, a federal court rules the new law was unconstitutional.
Undaunted, the power company seeks help from the U.S. Congress, asking it to amend the U.S. bankruptcy code so that they can, in fact, file bankruptcy.
This scenario is not hypothetical. It summarizes real-life events, although not in the U.S. proper. They’ve occurred in Puerto Rico, a U.S. territory since the Spanish American War ended in 1898.
Here’s a rundown of the parties and the basic facts.
- The power company is the Puerto Rico Electric Power Authority (PREPA), and the unconstitutional (according to a U.S. district court) law is the Puerto Rico Public Corporation Debt Enforcement and Recovery Act.
- The bonds are municipal bonds that are tax exempt in every state of the U.S. This tax exemption makes Puerto Rico’s municipal bonds unique because those issued on the mainland provide tax exemptions only in their home state.
- Puerto Rico (along with Washington, D.C.) is explicitly excluded from using the U.S. bankruptcy code. Specifically, the code prohibits Puerto Rico from using Chapter 9 of the U.S. bankruptcy code, the option available to U.S. cities provided that their home state allows it.
- The House Judiciary Committee has introduced H.R. 870, a bill that would remove the Chapter 9 exclusion for Puerto Rico.
PREPA’s supporters argue it’s only fair that Puerto Rico has the same access to the U.S. bankruptcy code as all other U.S. states, even though Puerto Rico is not a state.
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Puerto Rico bonds traded near a two-month high as creditors met with officials about restructuring the power utility’s debt, a step that could help ease the junk-rated island’s fiscal crisis.
Commonwealth securities maturing July 2035 traded Monday at an average price of 84.3 cents on the dollar, close to the highest since March 16, according to data compiled by Bloomberg. It’s the most actively traded Puerto Rico bond this year. The island’s municipal debt has gained for 12 straight days through Friday, S&P Dow Jones Indices show. The bonds haven’t advanced for a longer stretch since July 2014.
Lisa Donahue, chief restructuring officer at Puerto Rico’s Electric Power Authority, released a restructuring plan to some of the utility’s creditors Monday at a meeting in New York. The junk-rated agency owes nearly $9 billion and faces a $416 million principal and interest payment to investors on July 1.
Details of Donahue’s plan won’t be publicly released until negotiations are finalized, Jose Echevarria, spokesman for the utility, known as Prepa, said in an e-mail.
Bondholders, insurance companies and banks in August signed an agreement to allow Prepa time to work on a restructuring plan. That pact, which has since been extended, is now set to expire on June 4.
Prepa debt maturing July 2037 traded Monday at an average price of 55.6 cents on the dollar, compared with 56.1 cents on Friday, data compiled by Bloomberg show.
Puerto Rico is at a crossroads.
Our island government is more than $70 billion in debt and there are differing viewpoints on the best way to face this issue. As we consider our options, we should look to our roots. In the Puerto Rico where I was brought up, we learned to keep our promises and pay our debts. I believe that we should rely on that ethos, those values passed on from generation to generation, as we confront our current economic challenges.
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One of the most important questions today is whether Puerto Rico’s public corporate instrumentalities, now under the iron-fist control of the incumbent governor more than any other time before, should be allowed to file for Chapter 9 bankruptcy protection. In fact, a bill under consideration in the Judiciary Committee of the U.S. House of Representatives, H.R. 870, would allow Puerto Rico to do just that. But I strongly question whether that is the best path forward.
For one thing, Puerto Rico has benefited greatly from investors buying its bonds. This investment has funded education, social services, energy development, transportation networks and other infrastructure and community development projects for our people. If we were to take the easy way out and declare bankruptcy, the way forward would not be so easy. Investors would be understandably wary of buying our debt in the future, and we would have to pay much higher interest rates to attract funds. Why would we want to harm the next generation because we can’t handle our own debts?
What’s more, there are many viable alternatives available to us. One example is how the present rule of law in Puerto Rico already provides for the judicial branch to appoint an objective receiver for such troubled entities. The receiver can right the ship, fixing management issues and straightening out financial quandaries.
Another factor at play is that many of the holders of the bonds that constitute most of the debt of Puerto Rico’s agencies are willing to negotiate to avoid a dire situation. More than two-thirds of the bondholders of the Puerto Rico Electric Power Authority (PREPA), for example, have publicly expressed their willingness to negotiate with PREPA and have proposed a $2 billion plan that includes new investments on the island. We should also consider the public-private partnerships that have proven to be effective in the past in our island, such as the one operating our international airport and some of our tollways.
We should be looking to options such as these as we think about how we should deal with our current situation. After all, this type of creative and collaborative solution would be a chance not only to address the bond repayment issues at PREPA and other similar public instrumentalities but also to design and put in place real operational fixes that could benefit the future and reverse the mismanagement and mistakes that have pushed us to this situation in the first place.
As Puerto Ricans, we were raised to know that we pay our debts and we keep our promises. When it comes to the body politic that represents all of us, this situation is no different. Let’s not throw an obstacle into our long-term prospects and hurt our ability to access the capital markets down the road. Instead, let’s take the high road, follow our moral values and abide by our commitments.
González is vice chairwoman of the New Progressive Party of Puerto Rico and of the Republican Party in Puerto Rico. She is a former Speaker of the Puerto Rico House of Representatives, where she currently serves as minority leader.
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It is shaping up as a hectic summer for investors in Puerto Rico’s more than $70 billion in outstanding debt.
On Monday, the U.S. commonwealth’s publicly owned electric monopoly presented creditors with a restructuring plan, a month before a roughly $400 million payment comes due that analysts say the utility doesn’t have.
The plan includes efforts to modernize the authority and increase efficiencies, with a goal of stabilizing power rates, according to Chief Restructuring Officer Lisa Donahue, who declined to talk about a possible debt restructuring, citing continuing confidential talks with creditors.
The power authority, known as Prepa, is negotiating with creditors ahead of a June 4 deadline to extend talks or face a possible default. Prepa has been drawing on reserves to make debt payments and doesn’t have enough in those accounts to make the July payment, its trustee said in an April bond disclosure.
The episode highlights the volatility of Puerto Rico’s fiscal situation as the commonwealth and its indebted public agencies face a series of deadlines in coming weeks, each of which has the potential to change investor attitudes toward the island’s debt.
The average price of Puerto Rico bonds sold last year rose above 84 cents on the dollar last week, their highest level since March, after lawmakers approved a sales-tax increase and moved toward a value-added tax, according to Municipal Market Data. That bolstered confidence that Puerto Rico can balance its budget and borrow enough to avoid running out of cash.
But Guy Davidson, director of municipal investments at AllianceBernstein, which manages about $33 billion in tax-exempt debt, said the island still must deliver spending cuts and a plan for economic growth, which remains elusive amid a decade of stagnation.
“Our view is that all these things they have to do—raise taxes, lower expenses, take on debt—all of these things are short-term solutions,” he said. His firm is avoiding Puerto Rico bonds.
Investors are waiting on lawmakers to wrap up a budget by July and sell an additional $3 billion in bonds. The government says it may have to shut down by September if it can’t raise fresh funds.
Puerto Rico lobbyists, meanwhile, are fighting on Capitol Hill to clear a potential path to bankruptcy. As a commonwealth, the island is currently excluded from chapter 9 of the U.S. bankruptcy code, the statute that covers municipalities like Detroit. Puerto Rico is working to change that.
Daniel Hanson, an analyst at Washington-based investment researcher Height Securities LLC, prepared a calendar last week packed with more than two dozen important dates and deadlines for Puerto Rico stretching through June 2016.
“They’re now up against a real serious material liquidity constraint, and they have yet to deliver on reform, despite two years of grandstanding about it,” he said.
Puerto Rico’s bonds also have benefited from low interest rates in the $3.7 trillion market for debt sold by U.S. state and local governments, which have left investors pushing into riskier securities in pursuit of higher yields. Hedge funds bought more than half of the debt offered in the island’s $3.5 billion bond sale in 2014, and investors including Jeffrey Gundlach’s DoubleLine Capital have been purchasing the island’s debt.
Ms. Donahue said Prepa’s plan calls for about $2.3 billion in capital investment, which will involve a competitive bidding process for third parties to build and operate new generating plants. Creditors, which include funds managed by Franklin Templeton Investments and OppenheimerFunds Inc., have proposed a $2 billion plan to revamp Prepa, saying it would provide the agency with liquidity while replacing its antiquated, oil-burning generators with natural-gas facilities.
A consortium of NRG Energy Inc., NRG -0.24 % ITC Holdings Corp. ITC 0.26 % and York Capital Management also is proposing a $3.5 billion plan to modernize Prepa. That would include building new natural-gas facilities and transmission lines and selling power to Prepa, saving the authority money. The plan doesn’t include job cuts at Prepa and doesn’t spell out what Prepa would do with money saved, said Jeff Rosenbaum, managing director at York, which oversees about $26 billion.
Stephen Spencer, a managing director at investment bank Houlihan Lokey who is financial adviser to Prepa’s bondholders, said that, while some elements of Prepa’s proposal will require further negotiation, “Overall, we feel the plan provided a basis for this further collaboration, and we remain committed to finding a fair solution for all parties.”
The authority is still talking with creditors about extending the June 4 deadline, Ms. Donahue said.
Whatever the immediate outcome at Prepa, which has extended numerous deadlines with creditors, there is still much work ahead. John Miller, co-head of fixed income at Nuveen Asset Management LLC, which manages about $100 billion in municipal bonds, ticked off a summer to-do list for Puerto Rico that included passing a budget, issuing the new bonds, paying short-term notes and implementing the tax changes.
“I think there’s a lot left to be accomplished,” he said.
Write to Aaron Kuriloff at aaron.kuriloff@wsj.com
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There is a most unusual TV interview of Gov. Luis Muñoz Marín on YouTube. The interview occurred in March 1954, just after the Nationalist attack on U.S. Congress that was led by Lolita Lebrón.(NOTE: This video was shared on Facebook by the Fundación Luis Muñoz Marín in 2013.)
During that time, Muñoz Marín had rushed up to Washington, D.C. to assure the world that he (and the rest of Puerto Rico) did not condone the actions of these “lunatics, fanatics, fascists and Communists.” This is how Muñoz Marín described the Nationalists to The New York Times, prior to the TV interview.
The interview was an installment of Washington Merry Go Round, which was the 1950s equivalent of today’s 60 Minutes, Meet the Press or Face the Nation. It was moderated by Drew Pearson, the top political columnist of that era. For nearly 10 minutes, Muñoz Marín filled America with lies about Pedro Albizu Campos and the Nationalist movement in Puerto Rico.
The most shocking moment occurred from 7:15 to 8:45—a 90-second segment where he described Albizu Campos as a lunatic who constantly wrapped himself in cold wet towels, in order to protect himself from “mysterious machines throwing nuclear rays at him from a great distance.”
On national TV, Muñoz Marín and Pearson scoffed at this madman from Puerto Rico. The implicit message was that anyone who believed in the independence of Puerto Rico was as crazy as Albizu Campos.
But Albizu Campos was not crazy.
He was, in fact, being subjected to lethal TBI (Total Body Irradiation) in his prison cell. This radiation continued for several years, until it finally killed him.
On February 18, 1951, while in solitary confinement, Albizu saw “ribbons of light on all the walls, in all colors, brilliant as the aurora borealis. Sometimes it looked like a cascade of melted gold.” Then, for the first time in his life, he passed out. When he regained consciousness, he had a splitting headache and what felt like a full-body sunburn.
The next day the lights returned, and so did his headache. Sometimes there was no visible light, but he could feel the rays. After a week he noticed that each wave of radiation swelled his legs, hands, head, and whatever other part of his body it hit.
Within a few weeks, Albizu’s legs had swollen to elephantine proportions. His arms were covered with burn marks, and the skin was peeling from his hands and wrists. His feet, ankles and calves were swollen red balloons. His chest and back were covered with stripes, as if someone had flipped him over on a barbecue grill.
In every way, from every angle, Albizu Campos looked like he was burning alive.
Albizu shows his burns and lesions to the press (via <a href="http://waragainstallpuertoricans.files.wordpress.com" rel="nofollow">waragainstallpuertoricans.files.wordpress.com</a>)
Albizu notified the chief of La Princesa prison, Warden Juan Bravo, with a series of five letters in May 1951—but instead of diagnosing and treating his physical condition, they sent two psychiatrists who reported that Albizu was suffering from “an interpretive psychosis,” “overtones of paranoia” and “hallucinations of all his five senses.” In short, they declared him insane.
Two prisoners named Robert Díaz and Juan Jaca Hernández were temporarily moved into Albizu’s cell—and almost immediately started complaining of headaches and radiation burns. Three female prisoners in La Princesa —Ruth Reynolds, Doris Torresola and Carmen Pérez— reported humming motors, unexplained vibrations and electronic shocks directed at their heads while they slept.
Dr. Orlando Daumy, a renowned radiologist and president of the Cuban Cancer Association, examined Albizu and reached three findings:
- the sores on Albizu Campos were produced by radiation burns
- every symptom indicated a person who had undergone intense radiation
- wrapping himself in wet towels, was the best way for Albizu to diminish the intensity of the radiation
Dr. Daumy also produced some physical evidence: a small X-ray film showing the image of a paper clip. Daumy had placed a metal paper clip with this film on Albizu’s skin—and the clip was radiated into the film.
On another occasion, a Geiger counter placed next to Albizu’s head clicked so wildly that it broke the Geiger counter.
(Via socialjustice.ccnmtl.columbia.edu)
Warden Bravo tried to keep the entire matter quiet, but he failed. In 1952, the story exploded all over Latin America. In Puerto Rico, El Mundo reported that Albizu’s blood pressure had skyrocketed to 220/120, that he could scarcely walk, and that he suffered from “atomic torture.”
El Imparcial reported that Albizu’s feet, chest and stomach were severely inflamed, and the muscles in his neck were infected.
In Argentina, Verdad put Albizu on its front cover and ran an article headlined “The Atomic Lynching of a Martyr for Liberty,” which stated that “the apostle of Puerto Rican liberty is slowly being murdered in jail by means of electronic rays.”
In Mexico, Corrreo Indoamericano charged that “fatal rays are being used against Albizu Campos.”
In Cuba, Tiempo reprted that Albizu was the victim of a scientific plan to induce cerebral hemorrhage, cardiac collapse, or both… and that these attacks were producing visible burns on his extremities, swelling of his face, and a severe choking around the neck. The article concluded dramatically, “God knows that this is a lynching at the height of the atomic age.”
In 1953, the International Writers Congress of José Martí delivered a letter to U.S. President Dwight D. Eisenhower, demanding an investigation into the prison torture of Albizu Campos. The letter was signed by 28 prominent writers, journalists and intellectuals from 11 countries. The letter was ignored.
The Cuban House of Representatives passed a resolution acknowledging the “very grave state of the Puerto Rican patriot Pedro Albizu Campos,” and calling for his immediate release.
All of these international messages were ignored.
The U.S. government simply declared Albizu Campos “insane.” The prison guards laughed, and called him El Rey de las Toallas (The King of the Towels).
The radiation torture continued until March 27, 1956, when Albizu Campos finally suffered a cerebral thrombosis. The prison authorities waited two full days, until March 29, before taking him to San Juan Presbyterian Hospital. By this time, he was in a coma.
After that, for the last nine years of his life, Albizu Campos was unable to walk, unable to speak and the right side of his body was paralyzed.
(Via <a href="http://waragainstallpuertoricans.files.wordpress.com" rel="nofollow">waragainstallpuertoricans.files.wordpress.com</a>)
Four decades later, a reporter for the Albuquerque Tribune named Eileen Welsome won the Pulitzer Prize for her exposé on U.S. government-sponsored radiation experiments from 1944 to 1974. In her book The Plutonium Files, Welsome detailed how the U.S conducted hundreds of secret radiation experiments on thousands of people (including prisoners), which inflicted intense suffering and premature death.
As reported by The New York Times, from World War II until the mid-1970s, 16,000 people were subjected to these radiation experiments throughout the United States. Many experiments were lethal, and many victims were prisoners.
Nearly 40 years after Albizu Campos’s death, his FBI files (carpetas) were declassified, and a veil of secrecy was finally lifted. These files show that Pedro Albizu Campos was one of those 16,000 people subjected to a radiation experiment…
…except that in Albizu’s case, it was no mere experiment.
It was a deliberate, slow-motion, atomic lynching.
Albizu Campos was subjected to lethal TBI for an extended period of time, until it finally killed him.
Governor Luis Muñoz Marín knew all about it.
He collaborated with the U.S. government in the torture and murder of Albizu Campos.
***
Nelson A. Denis is a former New York State Assemblyman and author of the upcoming book,War Against All Puerto Ricans.
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Editor’s Note: You can read Part I here and Part II here.
JM: What are your thoughts on the immigration issue in the United States and how it pertains to Latinos?
ND: The immigration debate is important, and it must be continued until everyone —Latinos and other groups— receive the same consideration that was extended to European immigrants for the past 300 years. This is especially true, when a person who walks 100 meters across the Rio Grande is considered more of a foreigner than a person who arrived from across the Atlantic Ocean.
However, the discussion of Latino issues (particularly amongst politicians, talking TV heads and newspaper columnists) is often limited to this one issue, and that is not healthy. Just like Hawaii, Alaska, Texas, New York and Maine are five enormously different states. Mexico, Puerto Rico, Cuba, Columbia and Brazil are five highly differentiated countries. Tijuana and Tierra del Fuego are 6,700 miles apart.
The Latino community is not a monolith, and should vigorously resist the effort by marketers and politicians to treat them as such.
JM: Is there a class and racial bias in Latin America that exacerbates the immigration problem, which is being ignored by U.S. commentators?
ND: The Dominican Republic recently closed five of its consulates in Haiti. Univision and Telemundo news anchors are lighter-skinned. So yes, class and racial bias exists nearly everywhere on this planet. Many of the poorer, disenfranchised individuals are the ones who have to move, and hope for a better opportunity elsewhere.
This is rarely addressed by U.S. commentators.
JM: What is missing from discussions about Latino identity, especially in regards to Puerto Ricans?
ND: Puerto Ricans were subjected to many assaults on their identity:
- the English language was imposed on them for decades
- US governors were imposed on them for 50 years
- over 100,000 Puerto Ricans had secret FBI files (carpetas) opened on them
- the level of informants required to generate 100,000 carpetas numbered in the thousands
For decades, there were over 100 police informants in every town in Puerto Rico. This created a culture of secrecy, mistrust, apprehension and betrayal.
In a very real sense, through its covert actions (100,000 carpetas and thousands of police informants); overt actions (Ponce, Utuado and Río Piedras massacres; bombing two towns, arresting thousands of citizens); economic violence (currency devaluation, Hollander Act taxation, eviction of Puerto Rican farmers, denial of minimum wage); political disenfranchisement (no vote in federal elections, no representation in US Congress); and racial discrimination in the mainland. The U.S. has twisted and steamrolled the Puerto Rican character for over 100 years.
The island’s ELA status —with a U.S. veto over any law enacted by the Puerto Rico legislature— is one of the best examples of this twisted relationship.
JM: Should Latinos be more concerned with assimilation or with maintaining their distinct communities, and where is the balance between the two?
ND: Over the past 50 years, the Cuban community in Miami has accomplished both of these goals, and there is no reason why others shouldn’t do the same.
One of the best ways to do this —as American as apple pie— is through constant civic engagement. Attend PTA meetings, find a book club, run for the school board, join the local Chamber of Commerce, start your own Latino Chamber of Commerce.
Whether you’re a Democrat, Republican or something else, make sure they see and hear you.
You can do all this without losing one shred of cultural identity, or forgetting your personal heritage.
JM: How have race and class evolved in Puerto Rico since the 1950 Revolution?
ND: Since I was not raised on the island, I do not have enough personal experience to offer a concrete answer for this.
From speaking with family, visiting the island often, observing the prevailing media imagery and noting the skin, eye and hair color of news anchors and telenovela stars, I don’t see any great changes.
JM: One of the greatest contradictions of U.S.-Latin American relations is the amount of love many have in the region toward the very country that has repeatedly helped install fascist, murderous dictators and depress their economies. Why do Latinos continually embrace a country whose government has historically been hostile to them?
ND: I don’t think they embrace or “love” the oppressing country, and certainly not its government. They embrace certain aspects of it.
The mythological “American dream,” wherein the streets of New York are paved with gold and anyone can become a millionaire, has captured many imaginations.
The American film industry gets into people’s heads, all over the planet.
Back in July 2002, when we were bombing Afghanistan into the Stone Age, a U.S. plane bombed a wedding ceremony in the village of Kakarak and killed thirty people. I saw a photo of a boy looking for members of his family, in the ruins of one of the buildings. He was wearing a t-shirt with Arnold Schwarzenegger’s face on it. This boy had no great love for the US, but he was still an Arnold Schwarzenegger fan.
Ten thousand people might shout ¡Que viva Puerto Rico! on Thursday, but the next day, on Black Friday, those same ten thousand people might storm a Walmart for the latest flat screen TVs.
Consumerism can be very powerful and insidious. Many people “resent” Uncle Sam but love to eat Big Macs, watch 50-inch TVs, smell and glow like J.Lo, and they fail to see the contradiction in all this. Without realizing it, their “resentment” of Uncle Sam has become purely theoretical.
It’s a Stockholm Syndrome that transcends political border, based on materialism and celebrity.
JM: What responsibility, if any, do Latinos in the United States have in helping their homelands? Specifically for Puerto Rico, are those in the diaspora doing enough to support their brothers and sisters back home?
ND: This question is difficult to answer. It is difficult to define “enough.” In a sense, there is never an “enough,” because you can always do more to help other people.
Over the years, I have seen some families remain very tight-knit, and help each other across several generations.
I have seen other families that fall apart quickly, and don’t even contact each other. I find this very sad.
One thing I noticed in East Harlem, was the number of Mexican immigrants who worked sixty hours a week, so they could send a monthly remesa to their families in Puebla. That left a deep impression on me.
JM: Finally, what lessons should be learned from the Revolution of 1950? Given the economic desperation currently on the island, could and should there be another one?
ND: For me, the greatest lesson from the 1950 Revolution was that history is always written by the winners. Even as they deployed 5,000 National Guard troops, bombed two towns, and arrested 3,000 Puerto Ricans, the US conned the rest of the world into thinking that it was, as President Truman put it, “an incident between Puerto Ricans.”
Real revolutions (as opposed to disguised right-wing coups d’état) are always healthy. But after 117 years of colonization, the greatest obstacle to a real revolution in Puerto Rico is no longer the US government or the US military. It is the thought patterns, and value systems, of the people themselves.
The people in this shopping mall are not thinking about revolution:
So I don’t think a political revolution will set things right anymore. It’s too late for that. Something much more radical is necessary now: a change in consciousness. People have to throw out their televisions, shut off the internet, drink water, play baseball, walk long distances and read books.
War Against All Puerto Ricans will be available on April 7.
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A recently published book, They Know Everything About You, discusses the loss of privacy in modern life. It shows how corporations, governments and the Internet have eliminated the privacy of virtually everyone on the planet.
The combination of high technology, internet data collectors, the Patriot Act and global surveillance have created a world where our phone calls, text messages, e-mails, tweets, Facebook chats, consumer purchases, credit reports, court records and medical histories are open to anyone who knows how to look for them.
Take a look at this image:
Every one of those rectangles of information is widely available. It does not even require a subpoena. The information is “out there” somewhere—and beyond your control.
Truly frightening, isn’t it? The world of 1984, depicted by George Orwell, is upon us. Now consider that this Orwellian world, is exactly the world that the U.S. created in Puerto Rico. It was called theCarpetas program.
From the mid-1930’s until the 1990s, the FBI kept secret police dossiers on Puerto Ricans. There are 1.8 million pages of files: on Pedro Albizu Campos, the Nationalist Party and over 100,000 other Puerto Ricans. An additional 60,776 carpetas were opened on vehicles, boats, organizations and geographic areas.
The practice was so ubiquitous and widespread that it became a verb in Puerto Rico: as in “te arrestaron” (they arrested you), “te sentenciaron” (they sentenced you) and “te carpetearon” (they carpeted you). A political cartoon from the era captures the public sentiment: a man is getting a haircut. His barber says, “I know exactly how to cut your hair. I see it right here in your carpeta.”
Yo se precisamente como cortar tu pelo… lo veo aquí en tu carpeta.
The average carpeta contained roughly 20 pages but many were more extensive: the file on Pedro Albizu Campos filled two boxes with 4,700 pages. The information found in the carpetas included school transcripts; employment history; political affiliations; club memberships; bank accounts; property holdings; taxes paid; family and marital records; travel history; auto registration and license plates; meetings attended; publications written or received. They also included personal information: friends, business partners, sexual partners, mistresses, gigolos, debtors, creditors, personal letters (intercepted at the post office), recorded phone calls, photos, wedding lists, laundry tickets and “miscellaneous items.”
The carpetas were used to arrest people, ruin their reputations, destroy their careers, and tear their families apart. Their power is best illustrated by this one:
This carpeta on Luis Muñoz Marín, from multiple informants, disclosed that he was “a heavy drinker and narcotics addict.” With this one FBI report, it can be argued that the U.S. government was able to control the island’s politics for nearly 30 years, as simplistic as it might seem to many.
The carpetas were given additional teeth by Public Law 53, which became known as La Ley de la Mordaz (the Law of the Muzzle). For 10 years, from 1948 through 1957, Law 53 made it a felony to say a word, sing a song or whistle a tune about independence. If you sang La Borinqueña, or owned a Puerto Rican flag, you could be imprisoned for 10 years.
Many years later, in the year 2000, FBI Director Louis J. Freeh admitted in a U.S. congressional hearing that “the FBI did operate a program that did tremendous destruction to many people, to the country and certainly to the FBI.” Freeh then vowed to “redress some of the egregious illegal action, maybe criminal action that occurred in the past.”
Unfortunately by that time, the damage had become incalculable. It extended beyond any individual or group, and even beyond the issue of independence. The carpetas drove a permanent wound into the national character of Puerto Rico.
Today, many people complain about “government intrusion” into our private lives, as if it were something new. But it is not new. Puerto Ricans suffered all of this, and much worse, for 60 years.
As befits a sun-kissed island with wonderfully fertile soil, Puerto Ricans were an open, gregarious, cheerful people, but sixty years of carpetas and police informants burned fear, secrecy, mistrust, lying and betrayal into their collective experience. It is a wound that may never fully heal.
The final irony in all of this, is that George Orwell’s 1984 was published in 1949. It was an instant bestseller in both the U.S. and Great Britain. Even as it bombed the towns of Jayuya and Utuado, arrested 3,000 Puerto Ricans, opened carpetas on another 100,000 and tortured Albizu Campos with TBI (Total Body Irradiation), the U.S. was reading 1984 and clucking about the “perils of Big Brother.”
That is how clueless they were about Puerto Rico.
***
Nelson A. Denis is a former New York State Assemblyman and author of thebook, War Against All Puerto Ricans.
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Pedro R. Pierluisi, the territory’s delegate in Congress, writes that “no people have ever prospered while being treated unequally.”
What We’re Reading by By THE NEW YORK TIMES
Get recommendations from New York Times reporters and editors, highlighting interesting stories from around the web. In this installment, great reads from John Leland, Steve Lohr and others.
Puerto Rican Mayor Faces Taxi Troubles on a Trip to Bronxby By EMMA G. FITZSIMMONS
Carmen Yulin Cruz, the mayor of San Juan, P.R., hailed a taxi in Greenwich Village on Wednesday night to go back to her hotel in the Bronx. But the driver refused and kicked her out of the cab.
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At the conclusion of the Spanish-American War of 1898, the New York Times concluded that “Porto Rico” [sic] was a charming winter resort, with considerable commercial value, and a valuable naval station positioned between two continents. “We are not pledged to give Porto Rico independence,” the editors concluded. It would be much better for her to come at once under the beneficent sway of the United States than to engage in doubtful experiments at self-government, and there is no reason to believe that her people would prefer it.”
In the Treaty of Paris, Spain ceded complete authority over Puerto Rico to the United States. The island became a “self-governing” commonwealth in 1952, with a bicameral legislature and a popularly elected governor. The “sway” of the United States over Puerto Rico, however, has not been entirely beneficent. And there is considerable evidence that many Puerto Ricans preferred – and prefer – independence.
In “War Against All Puerto Ricans: Revolution and Terror in America’s Colony” (Nation Books, $28.99), Nelson Denis — a former member of the New York State Assembly and editorial director of El Diario, the largest Spanish-language newspaper in the United States — tells the story of the resistance to colonial rule in Puerto Rico in the first half of the 20th century, which culminated in an assassination attempt against President Harry Truman and an armed insurrection led by Pedro Albizu Campos, the leader of the Nationalist Party.
“War Against All Puerto Ricans” draws on the personal correspondence, autobiographies of and interviews with Puerto Rican nationalists, family members, and friends. And Mr. Denis makes effective use of thousands of documents he obtained through the Freedom of Information Act. He demonstrates that authorities fabricated evidence that they acted in self-defense in the Ponce Massacre of 1936. He makes a compelling case that, having discovered that Luis Muñoz Marín, the leading politician in Puerto Rico, was a drug addict, the FBI blackmailed him to abandon his support for independence. And Mr. Denis endorses claims that Albizu Campos was subjected to radiation experimentation while he was in prison.
Mr. Denis is surely right that the colonial rule of Puerto Rico “is not a pretty story.” That said, “War Against All Puerto Ricans” is a polemic. Since he regards the Nationalists as freedom fighters, Mr. Denis gives them a free pass, even when initiate violence. He does not address, let alone take seriously, the arguments of advocates of commonwealth status for Puerto Rico. And his account of the policies of the U.S. government – and the attitude of Americans toward Puerto Ricans — is simplistic.
Intent on deploying “state sponsored terror to cow an entire population into submission,” Mr. Denis writes, “the United States cared more about Nazi war crimes in Europe than murder in broad daylight in Puerto Rico.” To the men in America, he adds, “Puerto Ricans were not equals, or citizens, or even fully human. They were animals. And so they could be shot on Palm Sunday like rabid dogs in the street.”
There’s no denying, however, that U.S. rule has not served Puerto Rico well. These days, unemployment and poverty rates are high and tens of thousands of people are fleeing the island. In 2014, Standard and Poor’s lowered Puerto Rico’s credit rating to junk bond status; Moody’s Investor Service reduced it one step lower than the S&P.
Mr. Denis insists there is a simple remedy for the island’s woes. It rests on an acknowledgement that “floating an American way of life at the expense of the entire planet is no longer sustainable” and “listening a little more to our artists and less to our corporations.”
Mr. Denis maintains that complicated solutions rarely work. In reality, they’re all we’ve got.
Glenn C. Altschuler is the Thomas and Dorothy Litwin Professor of American Studies at Cornell University.
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We’re back! Here’s the latest Rebel Report, the one where R.J. tells us all to just legalize it. Seriously, just do it.
Since an online White House We the People petition calling for the ouster of Puerto Rican govenor Alejandro García Padilla reached the necessary 100,000 signatures in a span of 30 days earlier this year, the White House last week had to draft a formal response. Here is what the White House said (as we suspected):
