tv Inside Story Al Jazeera March 3, 2016 11:30pm-12:01am EST
a minimum of a million dollars. they disorder the cards while cleaning out their late, late grandfather's house. >> i'm antonio mora, you can head over to aljazeera.com. ray suarez is up next with "inside story". unable to pay its debts. even in the face of dwauments and an exodus from the island-- defaults, the situation is unclear for bond holders, governments and 3.5 million citizens, the puerto rico people. it's the "inside story"
welcome to "inside story." i'm ray suarez. most of the time to most americans i think it's fair to say puerto rico is not on their radar screen. it makes the evening weather forecast, the baseball players have made the past time a more exciting game, you will see occasionally see or at least you used to see an ad reminding you of how easy it is to travel to the country without a passport. many american s are still unaware or at least unclear on the fact that the people there are american citizens and have been for almost a century. there are federal courts, military bases, and the best known names in american retail from one corner of the island to another.
the country is in deep economic trouble. it has borrowed heavily and finding it impossible to pay all its debts in full or on time. al jazeera's robert ray spoke to one of the commonwealth senators just after the new year. >> reporter: the island paradise here kicked off the new year by payments. >> the debt is unpayable. some of us here in the senate were saying that since 2014-- have been saying that since 2014. >> reporter: the country cannot stop the crisis they say until they're helped >> in order for us to pay, we will have to sacrifice essential services for the people here. >> reporter: trying to pay down debt, the itemed has slashed health care and public transportation services. ountried has slashed. athey have closed over 100
schools and increased the sales tax by more than 50%. no what side you're on here, if you talk to the politicians and ask them what is the reason for the recession, almost all of them will point to a 1996 act of congress that cut corporate tax incentives. by the time 2006 came along, most of those big companies left the island. the governor speaking exclusively to al jazeera described what happened next. >> it was a tool that we had to bring investors to the island, to bring factories, to bring manufacturing to the island. they shut down that with a ten-year phase-out period that ends in 2006. what happened in 2006? we get into recessions >> reporter: the jobless rate is 12.5%, more than double the national average of 5%.
last year 84,000 people left the island and 1,000 more gene them each week. most headed to the u.s. mainland. then there is the 45% poverty rate clouding the future of the working class. >> so a crisis that develop that took decades to develop will not be solved from one day to the next one. so for them i know what they are feeling, i'm with them, and it is because of them i'm trying too hard to fix these crisis. >> reporter: the debt load has been building for over a decade and the long-term outlook looks bleak with more payments due in months. it will only be able to start center scratch if it is lent money to repay the money it is owed. [ ♪ ]
an island called precious. today's title comes from one of the best known love songs, a love song to the island itself written by one of the best love musicians. this is mark anthony's recording. it is a song unknown to almost all americans who are not puerto rican themselves which sums up the island's predicament. my guest joining us tonight -- guests joining me tonight to discuss this issue i think for people who are just hearing about this or started to again around the new
year, it is unclear just who owes what to whom. 72 billion dollars, but it isn't all borrowed by the commonwealth government of puerto rico is it? >> it is central government debt, but there are 18 issuers, the central government or the government itself or public corporations like the electricity and water utility. each of those has different areas that loaned the money. also different sources of repayment are they also stratified in the way they can pay and who gets paid first and the seriousness of default? >> absolutely. if you look at the prices of these different 18 classes of debt they go from 20 cents to up to 75 cents in the strongest debt. yes, there is different securities and people value each class of debt differently,
depending on how its source of repayment and legal security is in your house if you were short money at the end of the month you might decide to let one bill go for a couple of days or a week, or a month thinking you could get away with it knowing that you had to pay this other one >> right in the case of the country's debt, is there some debt that has to be paid on time no matter what while others you might get a little slide? >> you're a hundred per cent right. the government has already defaulted on 100 million dollars of debt in the past fiscal year, but they have paid almost 4 million debt service. there was a small amount that they defaulted on. they're saying prospectively in may and july that they will be defaulting on larger sums mark, right now they're trying to figure out how to pay certain lenders, how to satisfy accelerate object-- certain obligations.
look at the structure of debt right now, who is going to take a haircut? is there somebody who is really in line to take a loss? >> well, i think a lot of mom and pop investors who bought shares in mutual funds that vested in the debt, they're all going to be on the chopping block, including others. you talked about the problems that families have deciding which creditors to pay and which maybe you can hold off. one thing that the country has been doing is not paying vendors. so there are questions about whether school children will get certain kinds of special education or whether prisoners will be fed. they're vendors that have less secure claims than creditors. so often they lose out in a situation like this i understand when you say mom and pop investors because a lot of people have portions of their retirement savings in and other forms of savings in bonds
that are made up of bundled bond issues, but if they are bundles rather than just one kind of debt, doesn't your share price take a small hit, but since most other bonds are paying on time, you don't really lose your shirt, do you? >> i think it's a fair point. a lot of bond funds invest in puertop rico because it is triple tax free over the country, so a lot invest, and it may be 5 or 10% at most. you are correct that the hair cut will be relatively small for the fund overall has this debt crisis put people like pensioners in direct conflict with big finance houses that want to get paid? >> well, absolutely. pensioners and not only that, it
has been an absolute regime of austerity. they're looking at selling off public buildings and assets, laying off teachers, they've closed 150 scales, they've raised water and utility rates. electricity crofts so much more than we paid in new york. if none of this gets paid they will raid the pension systems further as a way of maintaining the solvency of the government. they're going to attempt to convert any of the debt into what's calmed p3s, public private partnerships, but they're five, public proift partnership for the plunderror of puerto rico. we're looking at the infrastructure, the water supply, electrical grid, brims, roads, hospitals, prisons, schools, all of those will be up for grabs for privatization. it is an entire move on the country economy if you are a retired civil
servant who gets a check at the beginning of the month, do you have a claim that is different, less durable from a bond holder? >> as i mentioned, there are these classes of debt. the highest level of debt is called general obligation which is the first claim to the revenue of the government. the pensioners have almost right below that in the constitution. if you're a pensioner there, that is now receiving a pension, according to the local constitution, those benefits cannot be reduced or removed. if you're a worker, the future benefits you might receive could be adjusted. it depends on whether someone is already retired or working as a civil employee an imd called precious, the debt crisis. "inside story."
you're watching "inside story." i'm ray suarez. an island called precious, puerto rico continue's debt crisis today on the program. my guests are still with me. is there any model for how to deal with puerto rico's predicament or is it different from the other 50 states in some important ways? >> it definitely is very different. puerto rico lacks a lot of the sovereignty that lots of states have and also a balance within the constitution. that's why over a period of self-decades it has accumulated a lot of debt and then became vulnerable to the situation that we talked about at the top of the show with the loss of the tax benefit, but it was only
because the lack of a balanced budget requirement allowed the commonwealth to accumulate so much debt that they got into this situation for example, illinois, which has notoriously perilous state finances, obligations that far outstrip its ability to pay, they have abilities to handle that that puerto rico doesn't have? >> illinois and other states like new jersey and california are an order of magnitude less in debt than puerto rico. by some measures puerto rico's debt to gross domestic product is in the order of close to 100%. so that is not the kinds of issue that illinois and the other states are facing. that's a distinction that we need to make, you know, when we sometimes exaggerate the amount of debt burdens that states have
you were talking about the things that puerto rico has already done. it is selling off the equivalent of the commonwealth family silver, cutting way back on government spending, raising taxes tremendously. at some point, and i know you're not an economist, but you have been a state legislatlegislator this set in place a vicious cycle. we see people flooring out of puerto rico and into florida. are fewer and fewer people being asked to pay more money? >> there will be no end to it. the govern said that puerto rico is in a death spiral because you have declining tax base and, therefore, more people are being asked to pay more taxes and, therefore, more people will move away. it goes deeper than that. we have discussed this before. there has been a pattern over a hundred years because of the jones act puerto rico is specifically prohibited from developing its own shipping economy of fundamental economy in puerto rico that would create
50,000 jobs and it creates a six to seven billion dlor whole in the puerto ricon economy every year because of the over pricing of all goods that come into puerto rico. that's part of the influence of washington. there's another part. i remember the last interview that kate long mentioned. it was six minutes and 17 seconds because i watched the interview. she said for some unknown reason puerto rico was exclupdd from access-- excluded from federal bankruptcy law in 1984. the operative word was unknown. it means it is unknown to her. it is unknown to the litigants and the federal judges. no-one could figure out why puerto rico was excluded where it was included as a qualifying debtor before. there's a reason. if you're family where you were limited to the impossible, whatever remains, that law was public law.
the bankruptcy law was signed in june 29 of 1984. public law 98. june 29 of 84 was an election year. just bike bernie sanders is talking about citizens united and the influence in governments, there's every indication that some lobbyist got that placed into the law at the last minute in 1984 during an election year and now puerto rico is suffering. the same way that it has been for 98 years let me ask that if it was put in there in a way that is hurting the economy, can it be taken out? >> as part of the let gags, both sides were - there was evidence that there was-- litigation, there was evidence that if nelson suggests it is inserted, it happens all the time. it is hard now for us 40 years
later to confirm that one way or another puerto rico would need congressional action to move on this, to modify these terms >> exactly. now in congress they're looking at a much broader authority for the commonwealth to restructure its debts and what chapter 9 would give. the discussion is moving in many different directions of the it's all on the table in congress right now. there's the treasurer re-- u.s. treasury wants the government to restructure the debt that is constitutional, the highest level of debt to restructure potentially the pensions. there's all kinds of things in play in congress right now. what happened in 784 was a mistake, whatever it was, but it is long past history now the puerto ricons on the island cannot vote for the next president in the general election, both parties hold primaries there. will the fate of the island intrude on the presidential race. is there an opportunity to get
the puerto ricon story out to a wider american public? it's "inside story." >> these people have decided that today they will be arrested. >> i know that i'm being surveilled. >> people are not getting the care that they need. >> this is a crime against humanity. >> hands up... >> don't shoot. >> hands up... >> don't shoot. >> what do we want? >> justice. >> when do we want it? >> now. >> explosions going on... we're not quite sure - >> is that an i.e.d.?
i'm ray suarez. i'm island called precious this time on the-- precious. the puerto rico republican is sunday. it clues two american candidates, both men, ted cruz and marco rubio likely to tell puerto rico ns to get their own fiscal house in order and not protect pensions over bond holders. my guests are still with me. has the puerto rican problem intruded at all in the presidential race? >> absolutely not enough. when marco rubio was asked the question was it the only time that it has come up in the debates and his response was essentially dismissive and rather special. in the same way unfortunately that we're caught up in this conundrum. when someone says it happens all the time or when someone says it was a 1984 and it was a mistake. that happens all the time and that little mistake is affecting
millions of people. it is affecting people that lose their jobs, lose their pensions and their homes, move from the imd. so really, unfortunately, that's not good enough. what we have turned this debt is into a credit default swap. it is a financial wrt by a buyer of corporate or sovereign debt in bonds intends to eliminate any issue of loose in the repayment of the bonds. this is ensuring that the buyers' potential losses is part of the agreement. so this is what we're trying to do in puerto rico now. we're trying to make it sort of a ponzi scheme. they did the it in 2006. it was the same wall street traders involved in the credit swaps that created the mortgage crisis that has been selling this debt to puerto rico and now they're collecting for penniesd on the dollar and that is no doubt good enough is a fair analysis of what is happening to puerto rico
>> i push back on a couple of points. first of all, extending chapter 9 to puerto rico which is something that i definitely support, as kate said earlier is not going to be the one-stop solution for all of this because only a certain percentage of puerto rico debt can be disdischarged under chapter 9. the commonwealth general obligation debt is not subject to chapter 9 of the code. there is no simple solution to it. the problem has developed over decades. in light of the unintended consequences of probably well intentioned actions on the part of congress and it is just really a mess. unfortunately, congress so far has punted on dealing with it in the constructive way whenever i hear that bond holders have to be paid, and with that phrase, have to be paid, when people have been buying puerto rican debt with
very high risk premiums put in, pieing higher interests than other kinds of bonds, aren't they acknowledging that there is a risk involved in buying puerto rican debt and if you get some hair cut it's not oh my god, you were getting paid extra money for making that investment up front >> that's right. bond holders also look at the legal security that underlies specific bonds. they all vary. so we look at the yield, which is critical, and then we look at how legally secure something is. i just want to say about the bond holders here. in the electric utility have almost settled and agreed to 15% hair cut of their principal and delaying interest payments. they're giving breathing space thus saving their investment >> exactly. right. i think that's how you have to see this. bond holders have to see puerto
rico succeed to be repaid over the next 10 to 30 years. there is a small handful of investors that want to cut and run and stick it to the commonwealth, but the vast, vast majority of the investors know that puerto rico has to be put on strong footing to grow and to be a successful place that people want to move to it and stay and pay taxes is puerto rico going to pay for its current problems for decades to come? is there a short of a shadow that hangs over someone that has debt problems like an individual who goes bankrupt? >> i think that's correct if you look back at the long history of similar entities that have defaulted, like puerto rico is in the process of doing. they usually don't get rid of the principal. they usually either reduce the interest rate that they pay and/or they lengthen out the repayment period. sort of like working out a mortgage.
i agree they will be stuck with a long time so hopefully it will be reduced and service in a manageable way it sounds like the three and a half million american citizens on puerto rico are going to be suffering for some time to come >> well, we have a situation where 34 hedge funds are submitted and commissioned a report that as for further austerity measures, more taxes, more school closures, more pension roll-backs and a lot of those hedge funds have paid dollars into the campaigns of jeb bush, hillary clinton, even andrew qomo. if they're rolling up the bankruptcy reform in committee, at the same time they're saying they want to help the committee, those two don't scare. i agree that there is a long-term health issue. the patient has to get off the table. even if we just resolve this
debt, even if we had the super bankruptcy tomorrow, there's an underlying health to the economy that has to be addressed the song speaks to puerto rico itself and says you would be precious without a flag, without laurels or glory, the sons of liberty call you precious. the last 117 years wouldn't indicate that the u.s. would say the same. i want to thank my guests. that's the "inside story." the circular firing squad of the republican party is falling into place. today the 201 presidential nominee warned the party against making donald trump its nominee. today is looking more like open political warfare and that's tomorrow's "inside story." i'm ray suarez. goodnight.