Puerto Rico Debt Crisis

Puerto Rico's debt crisis — which culminated in the 2016 PROMESA Act and the imposition of an unelected fiscal control board — was the result of decades of structural colonial disadvantage:

Section 936 and its repeal: In 1976, the U.S. created Section 936 of the Internal Revenue Code, which provided tax exemptions for U.S. corporations operating in Puerto Rico. This attracted pharmaceutical and manufacturing companies, creating hundreds of thousands of jobs. In 1996, Congress began phasing out Section 936 (fully repealed by 2006), causing massive capital flight and job losses.

Structural disadvantages: Puerto Rico cannot file for municipal bankruptcy (Chapter 9). It is subject to the Jones Act shipping law, which inflates consumer prices by 15-20%. It receives unequal treatment under Medicaid, Medicare, SNAP, and SSI. Federal minimum wage applies but federal benefits do not.

Wall Street exploitation: Puerto Rico's bonds were triple-tax-exempt (federal, state, and local), making them attractive to investors across the U.S. Wall Street banks aggressively marketed Puerto Rican bonds and facilitated billions in borrowing, even as the island's ability to repay deteriorated. Banks earned hundreds of millions in underwriting fees.

The result: By 2015, Puerto Rico had accumulated $72 billion in bond debt and $49 billion in unfunded pension obligations. Governor Alejandro García Padilla declared the debt "unpayable." The debt per capita was approximately $19,000 — higher than any U.S. state — while median household income was roughly $20,000.