“Neither a lender nor a debtor be,” is a great piece of advice that the character Polonius recites in Shakespeare’s Hamlet. Right now, many Puerto Ricans wish their leaders heeded Polonius’ words, as they have to decide which service the government will cut to pay back the lenders. In a tragedy that is more Greek than Shakespearean, Puerto Rico defaulted on its debts just a week ago and is currently unable to declare Chapter 9 Bankruptcy like American states are. In the meantime, many residents are left in a terrifying limbo of an island that has become a paradise lost.
The root causes of Puerto Rico’s current crisis go back to its status as a United States Territory. In the Jones-Shafroth Act of 1917, which made Puerto Rico residents American citizens, Puerto Rican bonds became exempt from federal, state, and local income tax, making Puertan Rican debt financially tempting. Puerto Rico, given the incentives, went on a borrowing spree, paying back the loans with even more loans at times. Furthermore, the debt wasn’t used for necessary development projects like weaning the territory off of fossil fuels and improving public education. As the economy stumbled, and the islands’ problems increased, the government had more difficulties in keeping up with loan payments, leaving the credit agencies to downgrade Puerto Rican debt. Eventually Puerto Rico, without any option of declaring bankruptcy or acquiring debt relief from Washington, defaulted on its loans.
This issue is more complex than a typical municipal bankruptcy, as Puerto Rico is a territory, but some of the issues Puerto Rico faces are similar to the failures cities are facing around the Rust Belt from Chicago to Detroit. The main priority now, of course, is to direct federal relief in order to ease the people’s suffering- but in the long term we must ensure that Puerto Rico properly manages its finances and uses debt for long-term investments. Ultimately, it is the Puerto Ricans that must remember Polonius’ words when they vote for a better future. But for now, what they need most is help from their fellow citizens so they can make the island a paradise again.