11. odious debt
Three Theories about Public Debt - A Translation
Now that the spectacle of the (2020) U.S. election season is starting to be underway, and Puerto Ricans are one of the many marginalized populations useful as pawns for the 2 main U.S. political parties, I wanted to highlight the anti-colonial perspective on odious debt. This perspective is being diluted, muddled and co-opted in a manner that ends up obscuring and absolving the U.S. government. Whether it’s the Trump administration, or any and all the administrations before him, at its core the official U.S. government policy toward Puerto Rico is colonial/imperial, it’s only a matter of feigned politeness or open hostility. We must get louder so our claims are heard on the international stage.
The anti-colonial perspective is that the ENTIRE Puerto Rico debt is odious because the U.S. controls Puerto Rico, not just as a de facto, but as a de jure colony. This argument is a hard sell to a general U.S. audience, accustomed to American exceptionalism as a norm. Anything that implies the U.S. empire as anything other than a benevolent protector, rather than the deliberate creator of fundamental conditions that enable fraud and corruption, as they were designed to do, is offensive to delicate ears. Any admission of mismanagement, if it ever occurs, is relegated to individual actors, never to its imperial ethos or policies as a whole.
One of the most clear-headed writer on the topic of colonial debt is Puerto Rican lawyer José Nicolás Medina Fuentes, who wrote the aptly titled book La deuda odiosa y la descolonización de Puerto Rico (Odious Debt and the Decolonization of Puerto Rico) (2017).
Instead of reinventing the wheel, I’ve taken the liberty to translate into English the article below by José Nicolás Medina Fuentes. Many of these arguments are simply not readily available in English, the specific details of why and how the doctrine of odious colonial debt should be applied in the case of Puerto Rico. I’ll try to post a Part 2 with additional information on the doctrine of odious debt before too long.
For expedience, Google translate was utilized for some sections. I made some minor edits and inserted a few comments, in italics, for context and clarity. A few pertinent links are inserted throughout. (Constructive translation improvements or suggestions can be directed to @chimeraelf on Twitter.)
This is the original article in Spanish, for those interested:
Tres teorías sobre la deuda pública Por José Nicolás Medina Fuentes
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Three theories about the public debt (of Puerto Rico)
By José Nicolás Medina Fuentes
In my recent book Odious Debt and the Decolonization of Puerto Rico, I discuss, among other matters, three visions of the public debt (of Puerto Rico).
The trend among creditors is to maintain that the debt arises from contracts that must be fulfilled and paid by a diminished population, to cover the principal and interests, regardless of life and human rights. The creditor attributes the sole responsibility of the debt to poor management and to the corruption of local politicians. That is the morality of the creditors and the colonial power asserted in the PROMESA Law (U.S. PUBLIC LAW 114–187—JUNE 30, 2016).
Obviously, there are unfair debts that do not have to be paid. Through a prolonged historical process, an alternate morality has developed, that has given primacy to values of justice and equity over unfair relationships and debts (thus the “People Over Debt” refrain). To name a few: the prohibition of debtor’s prison in constitutions and modern ordinances that reflect an overcoming in thinking regarding this aberrant ancient practice, used even in ancient Roman law, by which debtors guaranteed debts with their life or freedom; the right of the heirs to get rid of the debts of their deceased through the repudiation of the inheritance or their acceptance for the benefit of inventory; doctrines that impute responsibility to the controlling entity as in the corporate figure of the “alter ego”, in federal antitrust banking law that condemns in triple damages banks that incur non-traditional practices with their debtors (“tying arrangements”), and the odious debt doctrine, among others.
(In this section below Medina Fuentes appears to generally be referring to the arguments put forth by the Frente Ciudadano por La Auditoría de la Deuda, a group calling for an independent, citizen-led audit of the public debt.)
The second trend is reformist, which has diverted attention, and made it more difficult to generate an anti-colonial consensus on the debt among the population, and against the imposition of the PROMESA law and the Control Board (La Junta, or the Financial Oversight Management Board imposed by PROMESA law). It insists on doing a government or citizen audit to determine which debt was made in violation of the constitution and which portions are legitimate and to be paid by the people through a restructuring process. It focuses its attention on the creditor-territorial debtor relationship, on the means of the audit, the transparency in the management of the funds, and in the corrupt politicians of bipartisanship. This trend has facilitated the usual mudslinging between red and blue. (This is a reference to the 2 main parties that have dominated local elections. Red refers to the Puerto Rico Commonwealth Party, ie, the PPD, or Partido Popular Demócratico, and blue refers to the PR Statehood Party, PNP, Partido Nuevo Progresista.)
This second theory has made it easier for the metropolis (a reference to the U.S. Federal Government and its seat in Washington D.C.) to evade its responsibility, an evasion which Congress clearly reiterates in Section 210 of PROMESA, that the territorial public debt is not the responsibility of the federal government.
This trend has reinforced to the world that the public debt was caused solely by local corruption and mismanagement. It has not pondered which remedies to obtain. Its focus is on the illegality of portions of the debt that exceeded the limits established in the Commonwealth’s constitution or because funds were used for recurring expenses. As for the “legitimate” debt, they propose that it be paid.
But the declaration of the illegality of debt contracts is a function of the courts, in this case the federal court created by PROMESA, which has exclusive jurisdiction to deal with disputes. A similar approach has been aired between holders of insured General Obligation bonds and COFINA bondholders in bankruptcy proceedings in progress and it has been anticipated that, if adversary proceedings continue, the parties will reach the U.S. Supreme Court.
In the area of the right of remedies, when a contract is canceled by a court decree, the contracting parties must return the bilateral benefits. In the case of debt contracts, the debtor territorial entity would have to repay the principal of the loan and if the creditors demonstrate good faith by not knowing the use that would be given to the monies, they are entitled to interest. It does not solve the colonial situation or the problem of the odious debt that, as a mortal scourge, makes Puerto Rico ungovernable.
““Colonial public debt is odious by virtue of being generated in a colonial relationship. It is “per se” unfair and odious. It is an irrefutable truth verifiable by historical facts. That debt is the responsibility of the metropolis.””
The third current is consequently anticolonial. Colonial public debt is odious by virtue of being generated in a colonial relationship. It is "per se” unfair and odious. It is an irrefutable truth verifiable by historical facts. That debt is the responsibility of the metropolis. (The United States, the illegal colonizer in this case.) It imparts legitimacy and helps to expand the consensus on odious debt that Harvard's world-renowned legal journal (The Harvard Law Review), in its April 10, 2017 issue focused on the (U.S.) territories, recognizes that if according to the case of Commonwealth of Puerto Rico v. Sánchez Valle, Puerto Rico is a territory or colony, then the current odious debt doctrine holds the federal government responsible for such debt.
The International Place of Puerto Rico
”Puerto Rico has, for over a decade now, faced deep crisis. Sustained levels of emigration to the continental United States have resulted in millions in “forced exile,” the territory’s debt has ballooned to $72 billion, and its relationship to the United States remains unsettled. This Chapter offers an internationalist explanation of Puerto Rico’s troubled position, demonstrating through recent developments that Puerto Rico is in fact non-self-governing under international law, and explores the implications of this finding pursuant to the Charter of the United Nations and other applicable instruments.”
It acknowledges the need to use audits and discovery of evidence to learn about debt contracts, creditors, and the degree of participation of the federal government to reconstruct the history of debt. During the negotiations of the Treaty of Paris in 1899, the United States used the odious debt doctrine to impose the burden of the Cuban colonial public debt on the Spanish monarchy, as it had been generated in an unfair colonial relationship and used to pursue the Mambian (Cuban) fighters.
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(A couple links on this topic:)
The USA’s repudiation of the debt demanded by Spain from Cuba in 1898: What about Greece, Cyprus, Portugal, etc.?
8 September 2016, by Eric Toussaint
Dec. 10, 1898: Treaty of Paris
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The odious debt doctrine has to be applied taking into account the particular characteristics of the system that has operated here (in Puerto Rico). I propose that the unpayable public odious debt is the responsibility of the entity that controls all the powers of sovereignty and has not allowed the Puerto Rican nation to generate and protect its wealth. A relationship that has favored foreign capital extraction of many billions of dollars from the jurisdiction, without paying taxes to the colonial entity, to pay them to the Federal Treasury. In 2014, that capital transferred $36 billion to the United States in net profits and paid the Federal Treasury about $12 billion in contributions, despite having enjoyed privileges, fee waivers, low wages and use of services and infrastructure. That is fraud on local assets that the Federal Treasury must return in reparation of grievances. In December 2000, the public debt was $24 billion. In 14 years, due to federal control rulings and privileges given to foreign capital, the debt increased to $72 billion and became unpayable in 14 years. If the federal government had offered adequate alternatives to the territory before the signing of free trade agreements, the elimination of 936 companies (IRS tax exemptions to companies operating in Puerto Rico) and those taxes of foreign capital had been paid at the outset of the tax event, unpayable debt could have been avoided, there would be no crisis, no bankruptcy or territorial control board.
There are current doctrines in Anglo-Saxon law on control and fiduciary duty and proper administration, which would be sufficient to impose responsibility on the United States over territorial public debt: reparation of grievances under the First Amendment that operate vigorously in a political relationship in which the petitioner is denied universal suffrage for federal elective offices, as is the case with Puerto Rican U.S. citizens residing in the territory; doctrines on the breach of fiduciary duty and proper administration under the Treaty of Paris contract or that emanate directly from the territorial clause; interference and impairment of contractual obligations as well as expropriation, seizure, forfeiture, devaluation, freezing of assets, property and rights of various sectors of Puerto Rican nationality without fair compensation. Under all these doctrines, the federal government has renounced its sovereignty and can be sued for damages in its federal claims court (“Court of Claims”) through class action lawsuits or subclasses by pensioners, workers, homeowners, merchants , businessmen, right or property holders, emigrants, among others, to claim the damages and losses caused by the actions or omissions of the federal government. That would give bargaining power. Having thus assumed its responsibility, nothing prevents the right of leveling the federal government from directing civil and criminal actions against its corrupt territorial agents, and Puerto Ricans, with great gusto and pleasure, would help identify and deliver them for processing.
The question lies in how, while each sector affected by the public debt defends its separate interests, unison is achieved by the widely affected populace to demand the cancellation of the odious colonial debt, so it is assumed by the federal government.
Thus, pensioners, university students, UTIER workers, small and large entrepreneurs, citizens burdened by taxes and fees, among others, go to the roots, to the central cause of the crisis, and the measures aimed at each sector. A perspective of the totality that unifies us as a people is necessary.
““The problem of colonialism is political and can only be resolved at the political level.””
The problem of colonialism is political and can only be resolved at the political level. As the three branches of the federal government have not been neutral forums for Puerto Ricans, it would be wise to concentrate efforts in forums of organization and political denunciation — without abandoning litigation as a secondary route and soundboard — in its center a people’s national assembly of delegates (or a constitutional assembly), which is inclusive, solvent, permanent, and with expiration dates for each stage of the different formulas based on their political strength. Thus a geopolitical problem is created, so that the status and economic claims of the debt are addressed, to force the federal government to assume its sole responsibility and establish an expropriation fund to pay creditors the fair value of the junk bonds they have today.
