The Week has a new idea for solving Puerto Rico’s debt problems: Puerto Rico could print up some money.
Puerto Rico is a territory of the United States. It belongs to the U.S., but it is not yet a state. The people are U.S. citizens, citizens can travel freely from the States to Puerto Rico, U.S. laws apply in Puerto Rico, and Puerto Rico uses American dollars.
The Week understands this. They don’t seem to get that Puerto Rico is a territory, but they know that dollars come from a single source. “The U.S. federal government has the sole power to create U.S. dollars,” they point out. “It says so right in the Constitution.”
So Puerto Rico can’t just rustle up some new dollars to pay their debts. And The Week is right that this is a problem. Puerto Rico’s constitution says specifically that debt service has to come before anything else, including serving the basic needs of the people. This may be a strange feature for a constitution, but there it is. So Puerto Rico is reducing its commitment to education and utilities in order to satisfy its creditors. This may not be a good idea. As The Week puts it, “Insisting indebted governments just suck an economy dry to pay off its creditors is incredibly destructive.”
They go on to say, “Practically speaking, this isn’t as big a problem for the states, because their economies are enmeshed in the far larger churn of money and services and redistribution created by the federal government. It’s just really hard for one individual state economy to get so out of whack with the rest of the country. And even if one did, states have legal access to parts of the bankruptcy code.”
Puerto Rico isn’t just left out of the larger economy that benefits the states, it’s also given short shrift when it comes to federal funds. As an unincorporated territory, Puerto Rico can legally be given less than a state would be — and that is exactly what happens. Puerto Rico gets much less in highway funds, grants, medical funding, and similar programs than states of the same size. And, as the article reminds us, Puerto Rico is excluded from chapter 9 bankruptcy protection, which states can use to restructure the debts of cities and utilities and other entities.
So the difference between Puerto Rico — a territory — and the 50 states is in fact the problem. Statehood would be the solution.
Printing Puerto Rican dollars would not actually be a solution. Puerto Rico’s creditors would not accept them, because Puerto Rico is not a country, and therefore can’t issue currency. Paying debts with play money is not going to get Puerto Rico back on track.