How Washington helped create Puerto Rico's mess

 Michael A. Fletcher and Steven Mufson, Washington Post - A generous series of tax breaks enacted by Congress shielded the profits of U.S. corporations operating here and helped transform Puerto Rico from a largely agrarian society to a manufacturing powerhouse. But what Washington gave, it also took away.

When Congress decided to phase out a crucial tax credit that ended in 2005, it helped plunge Puerto Rico into a recession that began a decade ago and has yet to end. Last week, Gov. Alejandro García Padilla said the island could not repay more than $70 billion in debt, setting it down a path that could rock the municipal bond market and lead to higher borrowing costs for state and local governments across the United States.

Officially a U.S. commonwealth, Puerto Rico is treated in some ways like a foreign country, in other ways like a state, and in still other ways unlike anywhere else. But it has never had full control over its destiny.

Now, it’s again at the mercy of Washington, as García Padilla asks Congress and the president to allow the island and its public corporations — which provide basic services including electricity and water — to file for bankruptcy, a process that would give Puerto Rico and its creditors an orderly way to restructure the territory’s staggering debt. Without that power, Puerto Rico is at risk of spending years in a situation akin to the Greek debt crisis playing out in Europe.

[“In some ways, what you have in Puerto Rico is an economic crisis manufactured by the U.S.,” said Victor Rodriguez, a professor in the Department of Chicano and Latino Studies at California State University Long Beach who closely tracks events on the island. “Now trying to fix it is like fighting a championship battle with your hands tied.”

The tax change by Congress is just one chapter in the history of the island being whipsawed and hampered by decisions made 1,500 miles away. Lawmakers closed several large military bases in the early 2000s, triggering the departure of tens of thousands of troops and civilian personnel and costing the economy hundreds of millions of dollars a year. Meanwhile, a federal law dating from 1920 requires every product shipped to Puerto Rico from the mainland to be transported on U.S.-flagged vessels, raising the prices of a wide variety of products. New relationship urged

Some analysts and business people say that forging a lasting solution to the island’s economic problems will require a reworking of its convoluted relationship with the federal government.