Puerto Rico's economic crisis may finally settle the colony's legal status

The economic crisis in Puerto Rico has reached crisis levels..

In a letter to Congress, Lew urged passage of bankruptcy legislation for the Caribbean island weighed down by $70 billion in debt and the effects of a decade of recession.
"Although there are many ways this crisis could escalate further, it is clear that Puerto Rico is already in the midst of an economic collapse," Lew said in the letter, addressed to Speaker of the House of Representatives Paul Ryan.

Puerto Rico has already defaulted on it's debt twice, a situation that has already triggered lawsuits. There is little hope that Puerto Rico will ever be able to pay back it's $72 billion of outstanding debt.
The unemployment rate is at 12.5% and the population of the island has declined by 10% over the past decade.
It's estimated that'll take 10 years for the crisis to pass at this rate.
The way out for Puerto Rico would be to declare bankruptcy, like cities and counties can, and Puerto Rico could until 1984, but it can't due to its unique legal status. However, this situation may soon end, if the Supreme Court has any say.

What the hell is Puerto Rico? Since America came into possession of the island in 1898, different governments have called it different things at different times, including a colony, a commonwealth, a territory, a republic, and a sovereign. Puerto Rico calls itself a commonwealth in English—though it is not a commonwealth—and a “free associated state” in Spanish, though it is not a state. The United States government calls it an unincorporated territory, but a federal judge has rejected that description. The United Nations once called it a non-self-governing territory, then stopped, and now wants to start again. The only aspect of Puerto Rico’s legal status that everyone agrees on is that it is a total mess.
On Wednesday morning, the Supreme Court waded into this mess with admirable pluck to see whether the Constitution can solve the mystery of Puerto Rico’s status.

The case, Puerto Rico v. Sanchez Valle, is a weird case for deciding Puerto Rico's legal status, and it will certainly not be the last word on the matter, but between the push in Washington regarding bankruptcy rights, and this case, we may finally get some clarification on an important issue that effects millions.

Sanchez Valle presents a question that flows logically from this theory: Is Puerto Rico also a “separate sovereign”—at least for double jeopardy purposes? If the court says yes, the ruling could trigger political shock waves, forcing the U.S. government to reconsider its legal relationship with the island, which it now treats as a mere territory. If the court says no, its decision could endorse a kind of colonialism that many Americans thought their country abandoned long ago.

A second case involving PR’s status (Puerto Rico v. Franklin California Tax-Free Trust) will be reaching the Supreme Court later this year.

For more on the background of this issue, just watch John Oliver's brilliant segment below.

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lotlizard's picture

Maybe the debt crisis will finally force people to open the damn box.

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Financial Guaranty Insurance Co. sued Puerto Rico’stop officials for raiding revenue earmarked for government agency bonds as the island rapidly runs out of cash, a step that pushed it to default this month on securities the company insures.
FGIC asked the U.S. District Court in Puerto Rico to block Governor Alejandro Garcia Padilla’s administration from diverting revenue that’s pledged to repay debt issued by some agencies, according to a Jan 19 lawsuit. The governor’s decision last month to do so forced the Infrastructure Financing Authority, called Prifa, to miss a $35.9 million interest payment due on Jan. 4, requiring FGIC to pay 22 percent of $6.4 millionin interest that it guarantees.

FGIC’s suit follows similar ones filed by Ambac Financial Group Inc. and Assured Guaranty Ltd. two weeks ago. The diversion of revenue allowed Puerto Rico to avoid defaulting for the first time on general-obligation bonds, which have the highest legal priority under the island’s constitution. The court consolidated FGIC’s complaint with Ambac and Assured Guaranty’s suit on Thursday, according to court documents. Judge Jose Antonio Fuste will preside over the case.

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