Let's get this out out of the way: Everyone deserves a share of responsibility. No single entity can be solely responsible for amassing $72+ billion in public debt for an island of less than 4 million people in a span of 40+ years. So the farcical claims that this is due to US policy, evil corporations, colonialism, vulture hedge funds, or socialism need to have several seats.
Notwithstanding the wasted breath in playing the blame game, explaining the various causes of Puerto Rico's crisis is key to understanding some of the short term and long term solutions.
1) Status/US Economic policy: I won't go into the nuances of Puerto Rico's status with the United States here. It deserves its own discussion, and I've already written on it previously via Latino Rebels. Nevertheless, status played a significant role here. Puerto Rico is, as the Courts have said, "in, but not of, the United States." This means that in economic terms, Puerto Rico is sometimes treated as State, and in other areas as a foreign nation. Usually at the arbitrary whims of Congress and the Administrative State. This hodgepodge way of treating the island wrecks havoc on promoting investment and economic growth into the island.
The other, more apparent, hinderance is the Jones Act. Scott Lincicome articulates this beautifully at The Federalist. In addition to Alaska and Hawaii, the Jones Act is a protectionist relic of a law that has artificially raised prices in Puerto Rico for decades.
2) Puerto Rican Leadership/Policy: Whereas some of the most hardcore leftist commentators would like to stop at point 1, they're being woefully dishonest and blind to what amounts to decades of incompetence and mismanagement by Puerto Rican leaders. Puerto Rico has had an autonomous and democratically elected Executive as well as autonomous budgetary authority since 1954.
Some like to portray the debt offerings from hedge funds as vulture-like and exploitative. And while a small part of me wants to agree with this, I immediately reject it. This isn't as if Puerto Rico was some 18 year old Freshman in college getting suckered into signing up for a credit card. These are adults who knew or should have known what they were signing up for when issuing this municipal debt. To portray Puerto Ricans as some poor, naive kidult is condescending and outright insulting.
They didn't have to take on this debt, and even if they did, they squandered it. Instead of using municipal bonds for infrastructure or at least SOMETHING that could affect economic growth, they chose to spend it on generous local entitlements, expanding the number of public workers, and plugging budget shortfalls.
And speaking of public workers, even after Governor Fortuno laid off 20,000 public workers as part of his reforms, there are 230,000 public employees. That's 20.3% of the total civilian labor force. For comparison, NJ's is 13.6%. That is completely unsustainable for an island that has dealt with double-digit unemployment for decades.
Additionally, instead of addressing what they can in spite of US economy policy, Puerto Rican leaders relied heavily upon high local taxes, tax gimmicks to bring large corporations to the island (while ignoring the hurdles it takes for local residents to start their own businesses), and tourism.
Well, the high taxes haven't worked because tax cheats have run rampant. There's a huge underground economy in the island because lax tax enforcement. And hilariously, the current Administration's solution to this problem is to increase AND add new taxes! Brilliant.
Regarding the tax gimmicks, they ran out in 2006, so naturally the large companies that came in have all left. But instead of addressing local taxation and regulatory hurdles, the current (and former) Administration introduced new tax gimmicks that have so hard produced less than successful results.
Finally, since the recession hit tourism has tanked, so the island lost a significant portion of its revenue over the last decade. But I don't consider the drop in tourism to be persuasive as a cause of the debt crisis considering Puerto Rico's public debt was already massive and out of control well before 2007.
So what are the solutions out there? What can be done?
By now, many have heard mention of Chapter 9 and bankruptcy options for Puerto Rico, but I've see a lot of confusion on what is precisely being discussed.
Chapter 9 of the US Bankruptcy Code is exclusively used for local and county governments filing for bankruptcy (see, e.g., Detroit). States cannot, and I repeat, CANNOT file for bankruptcy under Chapter 9 or any other provision of the bankruptcy code. The city of Sacramento can file for Chapter 9, but not the State of California.
San Juan, Puerto Rico, however, cannot file for Chapter 9 because Puerto Rico is not a State. The bill currently proposed in the House of Representatives, HR870, amends this. It is a grand total of 2 pages long, and changes literally ONE line in the bankruptcy code, allowing Puerto Rico's MUNICIPALITIES to file for Chapter 9. It does NOT allow the Commonwealth government to file for Chapter 9, although some Puerto Rican leaders want it to.
I would wholeheartedly oppose the bill if it were to grant that privilege. I am pro-Statehood. I want rights of US citizens in Puerto Rico to be equal to that of the United States. Allowing the Commonwealth to file for bankruptcy would grant a privilege the States would not have, and thus I oppose it in principle.
Now, I know there are many conservatives who are calling this proposal a "bailout" for Puerto Rico. Um, what? Was Detroit filing for Chapter 9 a bailout? If not, then why would it be for Puerto Rico's municipalities? Conservatives cheered for Detroit's bankruptcy because it allowed renegotiation of public employee contracts among other reforms to address the city's fiscal mismanagement. The same would happen for Puerto Rico's local entities.
"But they wouldn't have to pay their debts!" Yeah, that's what usually happens in a bankruptcy filing. I mean, if folks are now in blanket opposition to any reneging of debts, then why do we have a bankruptcy code in the first place? And guess what? Just as Puerto Rican leadership should be treated as adults, so should these hedge funds selling the debt in the first place. They knew the risks coming in (hence the high interest rates), and that risk included a risk of loss. Puerto Rico was stupid to sell the debt sure, but the hedge funds were stupid enough to buy it in the first place.
The other solution that has been floated has been placing the Commonwealth under receivership. I'm not diametrically opposed to the idea, but my knowledge on how it would work is lacking. I don't really know if its better than bankruptcy or not. Though I'm not sure why both solutions can't be implemented simultaneously.
Long term, after addressing the structural problems within the island, the status issue must be addressed. It is killing the island and Puerto Rico may never fully recover until status is finally resolved.
Lastly, kill the Jones Act. Kill it with fire.