Puerto Rico Enters a New Age of Austerity

Protests against a new fiscal plan highlight just how turbulent the island’s political and economic circumstances have become.

Across the globe, strikes and protests are regular features of each May Day, which marks International Workers’ Day. Sometimes, these protests function as pressure valves, an opportunity for people in the international working classes to air grievances and demand better conditions. But other times, the demonstrations represent something more—sounding warnings against significant inflections in global or national political trends, and pointing to turbulent times ahead.

It’s too soon to tell whether the general strike in Puerto Rico earlier this week will fall firmly into one category or the other. But it did come at a critical juncture in the island’s ongoing political and economic story. On Tuesday, thousands of people poured into the streets of San Juan, protesting both sweeping new cutbacks to the island’s spending and a painfully slow hurricane recovery. In a clash with riot police, protesters were met with tear gas and pepper spray. Though the demonstrations were ultimately disbanded, they could signal a deeper reckoning about the future of Puerto Rico and the limits of the ongoing austerity program.

There are three groups that have emerged as players in the island’s power struggle, and each played a role on Tuesday. There were the people facing off against officers from the Puerto Rican government: mostly workers, youth left behind by the mass exodus to the mainland after Hurricane Maria, and students. There was the government itself, whose chief representative, Governor Ricardo Rosselló, criticized “vandalism” from the protesters and said that the mayhem “damages the good name of Puerto Rico.” And then there was “La Junta,” a financial oversight and management board created by Congress in 2016 to solve Puerto Rico’s debt crisis and with whom residents and local government alike are currently at odds.

It was the oversight board’s new fiscal plan for Puerto Rico that set the stage for the violent clashes. In mid-April, the board approved the regime, which is supposed to help the island get out from under billions of dollars in debt; satisfy municipal creditors; stabilize the power infrastructure; and handle the ongoing recovery from Hurricane Maria, which made landfall last September.

That plan contains a number of provisions that have proven highly controversial among Puerto Ricans. On the labor side, the board’s plan takes steps to reduce employer costs; decrease work in “informal” markets, like street vending; and push workers into formal work arrangements—namely, tourism. It would immediately slash territory-mandated employee benefits, including sick leave and vacation pay; and it would cancel the mandatory Christmas bonus that firms currently have to pay most employees. To offset some of the losses to employee pay and benefits—the Christmas bonus alone is required to be somewhere between 2 percent and 6 percent of annual wages—the plan would increase the minimum wage for workers over age 25 by 25 cents per hour, a bump that could be ratcheted up if enough Puerto Ricans enter the formal workforce. It would also implement an earned-income tax credit.

Additionally, the new scheme would create a work requirement for Puerto Rico’s food-assistance program for people in or near poverty. It also targets a major driver of Puerto Rico’s current debt crisis: nearly $50 billion in unfunded pension obligations to public employees. The plan would save over $700 million over six years through a combination of freezes and reductions to those pensions.

Beyond the labor-law changes, the regime makes a number of alterations to the structure of Puerto Rico’s governance and economy. Currently, the island is managing the ongoing process of a structured bankruptcy and the privatization of Prepa, the island’s publicly owned (and deeply indebted) power company. Relatedly, the board wants to expand renewable energy sources and cut government funding to the University of Puerto Rico and individual municipalities by at least $451 million a year. It says the reductions can be offset by raising tuition at UPR, cost-cutting across the board, and more efficient local tax collection.

In all, these developments amount to a deep austerity program for one of the poorest places in America. Almost 200 schools across the territory have closed since last year, with an additional 280 planned to close this summer. The University of Puerto Rico agreed to a tuition hike that will more than double the average cost per credit per student. Many teachers, students, and university professors expect to leave their respective institutions over the next few months, as the fiscal plan slashes retirement benefits for teachers and professors, and cuts the safety net for young adults without increasing pay.

While Tuesday’s protests didn’t spill over into the rest of the week, there’s little sign that activists are going quiet. On Thursday, Pueblo Unido, a coalition of groups against the privatization of Prepa and other services, announced its support for “the fight of all the civic sectors of the country against the board” and a repudiation of “violence that was generated by the government against protesters.” Critically, among Pueblo Unido’s membership is Utier, the union representing most of the power workers on the island, including many of those laid off from Prepa since the beginning of the crisis.

Opposition to the plan extends beyond the protesters who showed up on Tuesday. Even some voting members of the board expressed reservations. One member, Ana Matosantos—who recently faced a potential ouster—voted against the plan, saying she was “simply not willing to support massive cuts to the safety net.” Although the board and the island’s official government had earlier seemed in agreement on the plan, Rosselló’s administration came out against the pension cuts, which would hurt the public employees who constitute a major voting bloc on the island. Rosselló wants to issue his own separate fiscal blueprint soon, although the board has already said it will fight his government in court if it does not implement the original approved plan.

This tripartite struggle for Puerto Rico’s future doesn’t appear to have an end date. With the island still recovering from Hurricane Maria; the continuing migration of many taxpayers to the mainland; major health and infrastructure setbacks, like April’s islandwide blackout; and the ongoing privatization of Prepa, there are many potential future flash points of division—and lower-income Puerto Ricans have only begun to feel the squeeze. What’s more, there are warnings on the horizon that the board’s outlook is still too optimistic—that the storm recovery is too fragile, that future storms could easily undo existing progress, that Puerto Rico simply won’t be able to hit its growth objectives—and the island won’t be able to meet the board’s primary goal of satisfying creditors. But what seems near-guaranteed is this: Life on the island will change drastically, especially for the people who risked a day’s wages to strike on Tuesday.