The inside story. Welcome to inside story. Im ray suarez. Just today a federal Appeals Court upheld a Lower Court Decision to block porto ricos municipalities from declaring bankruptcy. Theres probably too many for a population of over 3. 5 million. 78 municipalities some as small as 10 and 15,000. They are traditional units of government. Many older than the u. S. Their inability to get out from under crushing debt may slow down a resizing of the government rather than bringing the day closer. Robert ray visited the island as the fiscal crisis tightened, and time and options are getting shorter. Reporter its the new fiscal year in porto rico, sales tax jumping to curb the crisis the reality i is more than 70 billion in debt looms. Robert ray, Al Jazeera America an emergency meeting between mayors and the governor looking for solutions and Common Ground on the biggest challenge the commonwealth faced. You guys are mayors you have a finger on the pulse, probably tighter than the government has. Thats why we are here. Do you believe the governor is doing this in the correct way, with negotiating with bond holders and washington d. C. What would you guys do differently . There are huge ideological differences here. The nanning now, its the most important thing, to get peurto rico out of this problem and we have to do it together. Reporter the mayors told al jazeera, they are fighting for statehood, they feel like second class citizens but they need washingtons hep. The white house said dont expect a bailout. Carlos and his family opened this Clothing Store since 1918. These days they put the lights off. The cost of the electricity is hide. He fears the increase will drive customers away. This was like we knew it was coming. Seems 1020 years ago. The way we were going, it was going to happen some time. No one took the right measures to stop this. Reporter a surprising reaction to the sales tax increase at the mall. I think government expenditures are too high. 11 is too low, it should be about 20. Reporter not only is the sales tax a concern in peurto rico, but tourism that cruise ship is a huge part of the economy, and with cuba opening its doors, will that affect this island . For many cuba is seen as an opportunity and boost to the economy. Cuba has to reconstruct housing, infrastructure, power infrastructure. In peurto rico we have engineers and contractors who can help. Reporter for now, its wishful thinking. Is this politics at its best. Is there a solution or is it a game plan. There is a solution, it will take hard work, and wont happen in one are o two days. The governors, mayors and others say theyll have a reconstructing process in august. Why cant peurto ricos access chapter nine. Are state or commonwealth governments different from local entities or university systems. What are the options available to porto reekon institutions that find themselves unable to pay the debt. Joining us is a principle or founder. Welcome to the programme. Thank you. Good to be here. Help us understand who owes what. We hear the figure 73 billion, for an island with 3. 6 Million People. Who owes what and to who . Porto rico debt structure, 16 billion is owed by the central government. 5 billion by the up to s and municipalities and the balance, 50 billion owned by public corporations including trick utility, water utility, theres a corporation collecting sales tax. Basically chapter nine would allow 50 billion and the 5 billion to be restructured. Is that under current law an option that is legally not available to peurto rico. Exactly. 1984. The bankruptcy, the u. S. Bankruptcy law was rewritten, and for an unknown reason porto rico was excluded from the bankruptcy law. They have been in what an Appeals Court judge calls a no mans land not having a legal remedy to restructure the debt. In the last several days the governor of the commonwealth government the elected top elected official on the island of peurto rico said we cant pay it we just cant fa. What does it mean when a governor says that and if the next round of bills due comms up and a czech is not cut. What happens then . The debt structure is complex. Some it constitutionally guaranteed and the government will pay it. In relation to other, its likely theyll default on it. Theres groups of creditors organising to hold negotiations with the government. And in the case of the electric utility a group of creditors have been negotiating since last august. They lecture in a way that is sustainable long term until the island can provide electricity at lower rates. Some say they saw this coming over years, but peurto rico was able to sell bonds, right up until the crisis was untenable a couple of weeks ago. That means people were willing to take a chance on the island. How did they get into the fix. Right. I wrote in 2012 that the island would default going down the road. Other market commentators saw it. What happened from that period forward is it cost more money to borrow and lenders wanted more secured bonds, you cant pledge collateral so easily but the seniority structure, people wanted to be higher in the structure, to the front of the line to be repaid when the bonds needed to be repaid. If you pick up a newspaper, turn on the television and listen to the radio, you here about greece and investigators taking a hair cut and acknowledging that there would be losses. In porto rico if the entities that say they cant pay start to default on their debt who is losing . Well typically bond holders lose. It depends on the type of bonds, how secure their holdings are. I do think, though. Theres a willingness on the part of Puerto Ricans to repay, the government discussed the repayment of the deb, not reducing it, postponing it giving breathing space to the island to allow them to get finances in order, and pay it over time. So when we saw the housing crisis, a lot of home owners stretched out principal amount. They may have had 15 years on the mortgage, 20 or 30 as if they were starting at the starting line can porto rico do that. Stretch the pilots out for another 10 and 20 years . In some cases they will. And in your mortgage analogy, home owners got lower Interest Payments allowing the Monthly Payment to the Mortgage Companies to be lower, this is a possibility for some of the bonds in peurto rico they could pay back the bonds at lower Interest Rates over longer periods of time. If an entity cant pay, are you saddling them if you extend the term are you saddling them with an obliges that they cant pay and pros possibilities for recovery are dimmer if they acknowledge they will pay. That is an interesting question. Greece had the initial round, they hair cut the debt and when they restructured it they did more of what you are describing stretching out the repayment. You have to look at economy, every system to see if its sustainable or not. In peurto ricos case they spent too much money on unnecessary government expenses. You can go and find all kinds of projects. If they they need to rain in the pork ending that for the island and then look across the services they offer and see are we doing it the best and efficiently that we can do. Kate long is the principle pal and founder of the reporting house. Last time we talked to elected officials. This time well talk to experts from the United States. Drowning in debt thats tonights inside story. You are watching inside story im ray suarez to say porta ricco had a difficult time with the United States is an understatement. Largely it occurred away from mainland americans. It starred in the earliest days after it was invaded by u. S. Forces and pulled away by spain. American businesses had an center in stuff from porto rico and little interest in the people of the islands in, made citizens by an act of congress. After the school world war. They were crafted with an sundaysing na in order for it to work a Million People would have a leave the islands in creating communities around the United States. Joining me from new york political scientist angelo fall cone founder of the institute for national policy. And a former member of the new York State Assembly author of the book war against all peurto ricans. Let me start with you the leaders of peurto ricos two main Political Parties have been good in recent months pointing the fingers at each other. Is there blame to go around here for how peurto rico got into the mess. Yes, everyone in peurto rico knew that this would eventually happen, that the debt problem was unsustainable over time theres a lot of pork a lot of patronage, a lot of inefficiencies in the government. And at the same time as you pointed out. Its important within porto rico, as basically when everyone agrees to call it a colony of the United States some of these problems, a lot of these problems have to do with the fact that since porto ricos take over of the United States its a cash cow for the country and american corporations. And has been basically, i think, undernourished financially over the last 117 years creating problems with this what i call the colonial model that the United States has, porto rico being the colony. If you look at the period after peurto ricans elect their government. Roughly starting after the world war ii did the United States basically wash its hands of the place after that . Well essentially peurto rico had its legs taken away at the outset of the relationship and replaced by a series of crutches. There has been bootstraps a 9 . 36, bringing in pharmaceuticals. They created a shortterm abatement schedule of 1020 years. They avail itself of a healthy tax structure, but when a better Labour Market or deal for the tax abatement wears out, they leave, leaving no indigenous manufacturing, no engine of recovery. The problem is na porto rico has been prohibited from developing its own industrial and economic base. Ill give you an example. Porto rico is an island it has to import and export. It is specifically prohibited from developing its own shipping industry because of a 1920 merchant marine act. The jones act. Prohibits peurto rico from developing shipping and not allowing it to control pricing for the products that comes in. You cannot have any economic recovery if you dont have an economy. Thats a strong indictment from nelson dennis. I wonder if during the years, when this thing was doing the damage to the puerto rican economy, there was anybody talking about it here. Is there any lobby, any political pressure from the porto rican members of congress from others interested in the islands fate. Was anyone pushing back in the other direction. During all this time. I think the problem is that in the United States, where you are talking about the u. S. Congress people know little about porto rico. Some described the relationship between the u. S. As a selective inattention that porto rico gets. Its what i call the political Twilight Zone and basically in its relationship and it created a situation where u. S. Policy makers have been able to ignore what is happening in porto rico in terms of longterm consequences. Ignoring the fact that these people were in second class citizens that have been not only mentioned to be economically disadvantaged in terms of its relationship, but politically as well. They are u. S. Citizens, they dont have a Voting Member of congress. That has created an interesting situation. With a mass migration out of the island. There are more Puerto Ricans in the United States. And ironically now, the politicians who have ignored themselves they are having to become independent on the peurto ricans here in the United States. Playing a major role in bringing attention to the problem. We have four Puerto Ricans who are Voting Members of congress. They basically full members of congress. Racing the issue of people who have a hand on lavan door. They have been going around talking to people mobilizing but its a kind of thing where its an uphill battle. The u. S. Congress has a bill making porto rico eligible. Engine happened people have noted the idea of having a financial control board being established to oversee the recovery of peurto rico they are proposals that have not gone anywhere. Stay with me. When we come back sustainable peurto rico, what should the relationship between the United States and peurto rico look like in 2020, 2030 and beyond allowing the island to live in dignity in years to come and avoid a repeat of the crisis. Drowning in debt is tonights inside story. Wildfires lit by arsonists. This sounds like it happened in a flash. Millions in damages. And the tragic human cost. Hes not here anymore. Find out how experts are fighting back. We are back with inside story. Im ray suarez political scientist, writer, teacher, angelo and historican filmmaker are with me. You gave us an example of how the law handy caps porto ricos economic future. We are talking about a place with a population bigger than 21 american states. Shouldnt it be act support itself. I tell you two things that are not works and three that wood. The two that arent acts 22. Which is in place, giving a 20 year tax abatement to Foreign Investment for high net individuals coming down from peurto rico, and they dont have to pay dividend or Capital Gains for 20 years. At the same time peurto ricans played a slew of taxes, thats the first thing that is not working, having the preferences for foreign investors. The second is trying to draw blood from a stone. These are austerities imposed. Spc factors rose 39 . Water rates have gone up. Two gasoline price hikes in a fear. 33,000 government workers are laid off. They reduce payments raise property taxes and installed an 11. 5 sales dam, that will not develop the puerto rican economy. In the long run, three things that will. 50,000 jobs from jackson, into porto rico developing an inherent industry. The second thing that works, having a Manufacturing Base that at one point porto rico was producing 25 of the pharmaceutical drugs that were distributed throughout the world. The world production was cut 25 from porto rico that is something that works. A third thing in order for everyone to pull together we need to get rid of the 78 mayors in peurto rico 78 for an island of 3. 6 million equates to having 182 mayors for the city of york. The aggregate salary in new york is over 12 million a year in salaries for the mayors let alone the mayoral administrations that they have underneath them families friends, whatever else. That is a great inefficiency and gives the United States the wrong signal because it shows that there is an inherent inefficiency. Lets reduce them if they have a Constitutional Convention restructuring the government and take that money and invest it into an indigenous Manufacturing Base where the profits are repatriated into peurto rico as opposed to the way in the 936 program where the companies took it back to the United States. Is there a realistic prospect for a politics that works in porto rico . No, i think basically we are talking about foreseeable fewer, a permanent crisis. I dont think theres a will for the congress to do anything. The white house has not done anything significant i dont think. A lot of band aids. Right now the big issue is how the government of peurto rico will negotiate its way in terms of restructuring the debt which is complicated. Its a very complex debt structure that they have to negotiate. Obviously theyll have to continue to raise revenues cut expenses. People who pay the price are the average peurto ricans. The island continued to lose population. And that is something that from what i see, if the current policies continue that will continue. I dont see at this point any way out from discussions about the dealing with the issue of the status of peurto rico. That also is not resolvable. There were hearings in the congress and its the same old story. Theres no resolution to the issue. Nelson dennis is against the war. Angela fall cone is head. Great to talk to you. Back in a moment for a final thought. Hidden history, you are watching inside story. And what we do. Dont try this at home tech know where Technology Meets humanity. Only on Al Jazeera America every time i have done a story about peurto rico im reminded how Little People know about the place. How it came to be part of the United Statesers how uncle sam dealt with the island its economy and people. American citizens almost a century, porto reekons are treated as foreigners. Mainland industries agriculture, electronic and pharmaceutical got what they want outed of the island but they remained poorer than the United States. If you are so inclined, you blame it on the people. The same that dont allow the democracy joined by the people in the United States. The same people considered expendable when the island industrialized. The same people that watched industries pack up and leave for venues once the tax status ended at the close of the 1990s. From the American Invasion to the exo does head the to the mainland. Its been a century of missed opportunities. As we heard, its not close to over yet. Thanks for joining us for inside story. See you next time im ray suarez. The stark reality is that we have only five days left to find the ultimate agreement. Greece has until sunday to come up with reform proposals or face an exit from the eurozone. Hello, welcome to jazz sh live from doha. Also ahead hundreds of Companies Stop trading on chinas leading stock exchanges to cut recent losses. As differences persist, negotiators extend talks over the