Translation: Debt

Translation: Debt


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Translated by Patrick Moseley


Daniel Alarcón: Did you know NPR has an app? It’s called NPR One and it offers the best from public radio and beyond. News, local stories, and your favorite podcasts. NPR One joins you while you travel, wait in line or wait for a friend. Find us on NPR One in your app store.


Welcome to Radio Ambulante, from NPR. I’m Daniel Alarcón. And before we get started I want to warn you: there are a lot of numbers in this episode of Radio Ambulante. A lot of figures. A lot of complicated terms and concepts that we, the editorial team, had a hard time figuring out.


And since we are going to talk about the details of the economy in a way that may seem a little esoteric, removed or abstract, that’s exactly why I want to start here, with a simple scene: outside the gate of a public school in the town of Manatí, on the northern coast of Puerto Rico.


Luis Trelles: Is this where you went to school?


Hiromi: Uh-huh.


Daniel: With Hiromi, a seven year old girl.


Luis: And what grade were you in?


Hiromi: Kindergarten.


Luis: And do you miss it?


Hiromi: Yes.


Daniel: Our producer Luis Trelles went with Hiromi to the grade school she used to attend. Now the school is completely abandoned. The paint is peeling off the walls, there are shrubs growing nearly as tall as Hiromi. It’s hard to imagine that just a short while ago, this place was full of children.


Tania Ginés: Sometimes the neighbor comes and cleans the school.  


Daniel: This is Tania Ginés, Hiromi’s mom.


Tania: The neighbors clean it, cut the grass, do a little maintenance, because it looks really ugly. The doors are all open. Everything is… The bathrooms are all in the open.  


Daniel: The José Meléndez Ayala Grade School is in Boquillas, a rural neighborhood of the town. In May 2014, the Puerto Rican Department of Education ordered the school to shut its doors. And its closing was very hard on a lot of the people in the neighborhood. Because in many ways, the school was the center of this community.


Tania: You got there and everyone knew each other, all the children were from the community. The school has been there for 91 years. I went to school there. My siblings and I went there. I grew up watching my parents, you know, volunteering on Saturdays and Sundays, cleaning the school and fixing it up.


Daniel: In Boquillas the vast majority of the students live beneath the poverty line. Tania herself is unemployed and has two older children who also went to the same school. And that isn’t the worst part. Because when you live in a place like Boquillas, you can find scenes like these all too often:


Tania: A little while ago, right here, at 3:00 in the afternoon, the whole street shut down. It was 8pm before we could go in our homes. There was a shooting, people were injured and they closed the road, this whole way.


Luis: Do you believe it was connected to drug trafficking?


Tania: Yes. I think it was. Yes.


Daniel: That’s why the school was such an important place. It was a place where kids could feel safe and where they could maybe find another kind of future. But these spaces, schools like this one, are disappearing all over Puerto Rico. The government has closed more than 100 schools in the past two years.


And to understand why, first you need to hear this:


Governor: Considering the current level of economic activity, the public debt is unpayable.


Daniel: Our producer Luis Trelles has been working on this story for a few months from Puerto Rico. Luis, who is the man in that recording?


Luis: Well, that is the governor of Puerto Rico and the recording comes from a statement he gave in June 2015 to announce that the island had a debt of 70 billion dollars. And if you think about it that’s a lot of money for a small island in the middle of the Caribbean with a population of 3.5 million people. But that’s not all he said. Because in the other part of the statement, he said that it was impossible to pay the entirety of the debt.


Governor: The goal will be to postpone debt payments for a number of years.


Daniel: Wow. So, why is it they can’t pay their debt? Or rather, who do they owe so much money?


Luis: Well, thousands of institutions that loaned the government money. Banks and investment funds in the United States. But also individuals. Individual investors, Puerto Ricans who loaned money to the government.


Daniel: And do you remember where you were when you heard that message?


Luis: I do, I wasn’t on the island. I was on a work trip in Guatemala. But I remember seeing the governor’s announcement on the internet perfectly and… I couldn’t believe it, Daniel. My first reaction was: “How did we get into this kind of debt?”


Daniel: So today, Luis is going to try to answer that question and others. How did we get to this point? And even more importantly: What happens next, when Puerto Rico can’t pay? It’s a story that ends in layoffs, pension in jeopardy and in schools —like Hiromi’s— closing.


And it wasn’t always like that.  


Luis: It feels like it was centuries ago, but between the 50s and the 80s Puerto Rico had an economic development program that a lot of countries, both from Latin America and the Caribbean, followed.


Newscaster #1: The Hato Rey hormone factory represents Puerto Rico’s contribution to medical science.  


Newscaster #2: Our cameras are getting footage of the three new factories that are already expanding their operations.  


Newscaster #3: The opening of now the hundredth new institution to begin production is an event of transcendental importance.


Luis: Well, these are messages from government newscasts in the 50s and 60s. It was a way of telling the public about the accelerated industrialization that was taking place in the island. And the clips come from a kind of time capsule, from a time we’ll call the “era of the 936”. And obviously no one from outside of Puerto Rico will understand what that means.


But before I explain it, I was to introduce Teresa García. She worked in one of the factories we just heard about in the news clips. She was a pharmaceutical chemists. Imagine her in a white lab coat, Daniel, surrounded by test tubes, with bubbling beakers and explosions.


Teresa García: Well, there weren’t so many explosions and bubbling beakers. I did start out doing analysis but I ended up supervising labs.


Luis: It was the 70s. Teresa was a young mother. She had two children and a house in the suburbs. The family had two sources of income: hers and her husband’s. It was a typical middle-class Puerto Rican family. And for her job, Teresa…


Teresa: We made Lomotil, which is for diarrhea. We made spironolactone, which is for high blood pressure.


Luis: And they made a lot of other drugs. In that period, some 75 international pharmaceutical companies opened factories on the island. That helped Puerto Rico get thousands of new jobs.


Teresa: And we had a lot of incentives for the companies. It was the 936, it was a paradise for them.  


Luis: Teresa is referring to a financial paradise, a tax haven. And that “paradise” was linked to that number we heard before: 936. It is the number of a legal document. A US federal tax code. And what you need to understand is that this code paved the way for US companies to set up shop in Puerto Rico.


Daniel: Luis, wait. I think we need to clarify something before we continue. It has to do with the political status of Puerto Rico, which is a little complicated, isn’t it?


Luis: I don’t even know where to start. It’s a difficult relationship.


Teresa: Well, we are an American territory.


Daniel: A territory, not a state.


Luis: Exactly. A colony, basically.


Teresa: We passed a constitution in 1952…


Luis: …In order to make decisions with respect to how we will run our government…


Teresa: …But we’re American citizens. We use the same money. We can enter the US without any problem.


Luis: Puerto Ricans who live in Puerto Rico can’t vote for president of the United States. And we don’t have senators or representatives in congress. And that is important because, at the end of the day, it’s the US congress that has the final say on issues on the island.


Daniel: And I imagine that isn’t very beneficial.


Luis: You may not believe it, but sometimes it is. For example, that number we were talking about: 936. For years that ruling brought a lot of good things to the island. Like I said, it was a stimulus. It motivated a lot of companies to move to Puerto Rico. That’s how they saved themselves from having to pay millions of dollars in taxes to Washington. And since the 50s, other decrees like the 936 had become the drive for economic development on the island. That’s why all of those companies came to Puerto Rico. Those pharmaceutical companies that we already talked about with Teresa.


But the Puerto Rican government had to do their part as well.


Daniel: I don’t understand that last bit. “Do their part”. What does that mean?


Luis: Well, it’s important that you know that before the 50s Puerto Rico was very underdeveloped. And in order for the 936 to work, all of the companies needed one thing: infrastructure. Streets. Highways. Education. Big projects that were generally paid for with bonds.


Daniel: And for those who may not know, what is a bond?


Luis: A bond is basically a piece of paper. But not just any piece of paper. It’s a piece of paper that certifies a loan, in this case a loan made to the Puerto Rican government. In other words, a promise of payment. And with this piece of paper, the government guarantees the bond purchaser that they will pay him or her back with interest on a set date.


Daniel: Who buys them?


Luis: Everyone: from large investment funds to everyday citizens.


Daniel: Ok. So in Puerto Rico—like in nearly every other country in the world—the government sells bonds to finance its own development.


Luis: Exactly. It’s totally normal. A government doesn’t have money in hand so it issues bonds to get it. And in Puerto Rico, starting in the 70s, the bonds brought billions of dollars in investment to the island.


Jorge Irizarry: The government says “I want to take out a loan”.


Luis: This is Jorge Irizarry. He is the former director of the Government Developmental Bank of Puerto Rico. It is the closest thing the island has to a governmental central bank.  And among other things, that Developmental Bank generated the bonds when the government needed money for infrastructure projects.


Jorge: When the government goes to take out a loan, the legislature has to way “we authorize the government to take out a 500 million dollar loan to build whatever: highways, aquaducts…”


Daniel: Ok, Luis, so to clarify: when they approve loans what they are really doing is approving debt.


Luis: Yes, that’s right. And the bonds sold like hotcakes.


Daniel: Why?


Luis: Well, the reason is simple: Puerto Rican bonds have a very special characteristic, and that is that you don’t have to pay taxes on them. That is another apparent advantage of being a colony. Because if you buy a bond from the state of New York or California, you need to pay local as well as federal taxes on them.


Jorge Irizarry explained it to me like this:


Jorge: If I buy a US treasury bond, I pay taxes on it.  If I buy a bond from the Puerto Rican government, I don’t pay taxes on it. That’s basically the difference.


Luis: So in the 90s and the early 2000s, these Puerto Rican bonds practically sold themselves because investors like anything that’s tax-free. That’s what Rubén Rodríguez told me. He’s a financial advisor who used to sell government bonds to all kinds of people.


Rubén Rodríguez: On several occasions I sold billions of dollars in bonds in a single day. It was crazy. A lot of times we couldn’t keep up with it and there would be people waiting outside because they really wanted to buy them and we ran out.


Luis: And here I need to clarify that a lot of times Puerto Ricans were the first in line to buy these bonds. Starting in the 90s, people on the island had a lot riding on the government and had put a good portion of their savings there. Jorge Irizarry, the ex-director of the government bank, gave me this dollar amount which surprised me.


Jorge: 30 billion dollars’ worth of Puerto Rican bonds were sold to Puerto Ricans.


Daniel: That’s a lot of money, a lot. And who invested that?


Luis: Well, that is one of the big problems in this story. Because the investors weren’t millionaires, Daniel. Well, there were some people who had considerable fortunes. But a lot of the Puerto Rican middle class got into the bond-buying game. Doctors, lawyers, engineers… people like Teresa.


Teresa: When I retired, I invested my savings in Puerto Rican bonds, thinking it was a safe investment.


Luis: Teresa’s investment is going to be a lot more important later in the story. But for now I have to say that the bonds market became so popular that a lot people who managed to save a little money tried to buy them.


While investigating this topic, I came across Edwin Batista’s story. In the 90s, when he was barely 20 years old, he started investing, but not in gigantic amounts. He was a college student who worked making hamburgers at McDonalds. Edwin Batista was one of those people who started with nothing, investing what little he earned at his job.


Edwin Batista: One day I managed to save my first three thousand dollars. Because I would get by, like the say here, como los codos.


Daniel: Como los codos?


Luis: Well, here’s what you call someone who’s stingy. And Edwin was very careful about his spending and that’s how he managed to save.


Edwin: And then, when I had a large enough sum of money, I invested all of it. 80 per cent of it was in government bonds.


Daniel: Really he’s not the usual profile when you think about an investor, I mean…


Luis: No, but he did really well. In Edwin’s case, what started out with a series of small investments became a fund with hundreds of thousands of dollars. And it was a combination of two things. On one hand, Edwin invested every cent he earned. And on the other, Puerto Rican bonds pay at much higher interest rates than the majority of other bonds on the US market. So, of course, his investments…


Edwin: …Grew and grew substantially.


Luis: Later on his money multiplied when he inherited his dad’s bonds. His dad had been a college professor, in economics, obviously, and spent his whole life investing in Puerto Rican bonds. and it had gone exceptionally well for him. We’re not talking about hundreds of thousands of dollars anymore, but much much more.


Edwin: So my portfolio had gone from being interesting to being a very important account.


Luis: Can you give us an idea of how much money you had invested in all of this?


Edwin: Uh… I would have almost two million dollars at this point.


Luis: Wow.


Edwin: So… you know.


Daniel: It’s like he won the lottery!


Luis: Just think about it: from ten thousand to two million.


Daniel: You’re a VIP.


Luis: Yes! And that was how the bank started treating him.


Edwin: People at that level don’t go to a regular bank.


Luis: Tell me about that, because I’ll never be at that level and I want to know what it’s like when you are a preferred customer at an investment bank.


Edwin: Well look, it’s very interesting and it’s very comfortable. For example, you call your personal banker to take care of everything. So “I need this or that thing”. “Ah, perfect”. They call you the next day “everything is ready, Mr. Batista”. It’s like a lot of people’s golden dream.


Daniel: How did these bonds become so popular? I mean, did government sell them? Did they promote them?


Luis: Well, they didn’t market them directly. Jorge Irizarry, the ex-director of the national bank I mentioned earlier, explained that the government didn’t sell the bonds directly to everyday people like Edwin. Government partners—in other words, the banks—were the ones who took care of that. Local banks as well as international banks.


Jorge: UBS does it in Puerto Rico. And Santander and Banco Popular.


Luis: And those aren’t the only ones because the brokerage firms on Wall Street and investment banks were also involved in all this.


Jorge: For instance Goldman Stacks, Morgan Stanley, Citigroup, you name it. All of them.


Luis: Those are very powerful institutions in the financial world. And well, since Puerto Rico is part of the United States, the territory was ripe for them to come and set up shop.  


Jorge: So they are the sellers, in a manner of speaking. I send them my bonds and they go and sell them on the market. That’s what they do.


Daniel: Ah, ok. So they are like intermediaries between the government and the buyers.


Luis: Yes. And so we have a gigantic economic and financial boom. Factories working at full capacity, thanks to 936. Infrastructure financed on tax free bonds. A lot of money moving all around the island. Everything was perfect.


Daniel: Until…


Luis: Well… until what happens in the next part of the story.


Daniel: We’ll be right back.




Daniel: If you’re looking for new podcasts, the best place to get them is NPR One, the NPR app. You’ll find new seasons from shows like Embedded, How I Built This, Invisibilia, and Code Switch. If you want to slip away from a Christmas dinner, your family or whatever, there’s no better way to do it than listening to these podcasts, always available on the NPR One app or at


I’m Daniel Alarcón. You’re listening to Radio Ambulante.


Luis: And I’m Luis Trelles.


Daniel: Before the break, Luis was telling me about Puerto Rico’s debt. And well, it was about to pop like a bubble.


Luis: But not the kind that bursts, but more like the kind that deflates slowly. Because it wasn’t something dramatic; nothing happened overnight. It took more than a decade.


And I would even say a lot of people didn’t know what was happening until it was too late. You have to remember, Daniel, that at the end of the day all of this wealth was circulating on the island thanks to that magic number we’ve already mentioned several times.


Daniel: 936.


Luis: Yes. That was what made the financial system stable because those pharmaceutical companies kept the economy going. But there came a time when the US Congress got tired of having their own tax haven in the middle of the Caribbean. Because remember: every one of those drug companies that came to build factories in Puerto Rico took jobs away from states like New Jersey. So in 1996 they decided to put an end to the 936.


Daniel: And then that’s the end of the movie?


Luis: No, because it didn’t happen from one day to the next. Congress gave a period of 10 years for it to end completely. And well, by 2006 the pharmaceutical companies had to pay federal taxes and, as you can imagine, Puerto Rico didn’t look like such an appealing place to build a factory anymore.


Do you remember Teresa García?


Daniel: Of course, the chemist.


Luis: Well she was one of the ones who was affected by the decree that ended the 936. As soon as they announced it…


Teresa: …What the big drug companies did was move their headquarters to Europe. To France, Ireland, around there.  


Luis: In total, in ten years, Puerto Rico lost some 50 thousand jobs like Teresa’s. Good jobs, Daniel, stable, well-paying jobs. They all vanished.


Daniel: And what did Teresa do?


Luis: Well, you could say she’s one of the lucky ones because Teresa saw what was going to happen in time.


Teresa: It’s not easy. We knew there were going to be rounds of layoffs. Eventually a lot of people were going to have to leave.


Luis: So Teresa decided not to wait for the drug company she worked for to leave. In 2005 she was able to retire and the company gave her 150 thousand dollars in compensation.


Daniel: Generous.


Luis: Yeah, rather generous. Teresa wanted to invest that money in order to earn a comfortable monthly income, especially since she was leaving her job, because she was 60 years old then.


Teresa: So my husband started getting in touch with brokers from brokerage firms to see what were the best investments.


Daniel: Oh, no.


Luis: Yup. Here is where Teresa’s story crashes into the story about the government debt.


Teresa: And when I made the decision we decided to make the investment we made…


Luis: …In Puerto Rican bonds.


This was all happening in the mid-2000s. When Teresa started investing, no one imagined the Puerto Rican government was going to let their bondholders down. It was the opposite; investing in Puerto Rico was even patriotic.


Teresa: At the same time I was helping my country to build schools and highways.


Luis: That motivation to help the country continue developing was something I heard from several investors. Edwin Batista told me something similar:


Edwin: And the bank itself, the broker, told me: “It’s for the country, to build the country.” And I said, “well sure, let’s give the country a hand.” And in a way I felt like I was contributing to making the country work.


Luis: But investing in Puerto Rico was turning into a riskier and riskier prospect. The 963 finally ended in 2006 and the government had no alternative to substitute it. Puerto Rico had ended up losing that magic number that made the economy grow with factories and well-paying jobs. To compensate, the government invested more money in the education system, in health, in anti-poverty programs, but there were fewer and fewer people employed in the private sector. And that is a terrible equation because that means that there are fewer contributors that can support government spending.


In other words, public spending kept growing and the economy didn’t. And that’s why government finances kept getting worse.


Jorge: If you look at all those years, from 2000 to 2014, government spending is greater than what was coming into the government.


Luis: In June, when I went to visit Jorge Irizarry, the former government banker, at his office, he had already prepared several graphics for me on his computer. On the screen you can see the difference between revenue and spending during the past 15 years. And of all of the graphs I saw—and there were several—this was the one that grabbed my attention the most. It showed a red line shooting upward year after year.


Jorge: The red line is the current level of spending. And here it says, “the deficit accumulated between the years 2000 and 2013 was 23.5 billion dollars”. So, it’s not a sustainable plan for anyone. Uhm…


Luis: In other words, it was like taking out a mortgage to pay the electric bill.


Jorge: Exactly.


Luis: And to cover this deficit, the government used the last resource it had left: the bonds. But with an important change. They didn’t just use them for public works anymore, but instead they used them to cover everyday government expenses.


Daniel: In other words, the kinds of things you should never pay with a loan.


Luis: Exactly. And all of this was really convenient for the banks, because every time they issued bonds, the banks came out on top. Rubén Rodríguz told me that many of his colleagues in the industry…


Rubén: …Focus on “if I sell this, how much will I make?”.


Luis: And the answer is they made quite a lot. Even after the 936 was eliminated, after 2006, Rubén kept on selling bonds that would run out three days after they went on the market. The government would decide that it needed more money, it would announce that it was going to issue more bonds and then people like Rubén sold them and charged a commission on the sale.


Rubén: If your sales over those two or three days were 10, 15, 20 million dollars—and a lot of times it was more, a lot more—you immediately got that commission. I’ve seen commissions of… in one month 45 thousand, 100 thousand dollars. Really, I have.


Daniel: Wow.


Luis: Yes, a lot of money. And think about figures like that, especially in Puerto Rico where more than half of the population lives under the poverty, it’s absurd.  


Daniel: But didn’t the people who bought those bonds know that the government’s finances weren’t any good? Why did they keep investing if they knew that the country spent more than it earned?


Luis: Well, it’s better if I let Jorge explain it:


Jorge: Well, yes, we were all very optimistic.


Luis: After 2000 the government hasn’t met its budget in a single year. Not one. But every year they kept saying that they had finally solved their problems and that they were going to bring in more money in taxes, and then that money never came.


Jorge: Everyone in Puerto Rico and all of the people in government, the governors and legislators, were really optimistic. No one said, “Ok, hold on. We shouldn’t… we shouldn’t keep going like this”.


Luis: And like Jorge Irizarry said, it wasn’t just the government. Rubén Rodríguez, the financial advisor, remembers how every year, at the investment bank where he worked, several financial analysts from firms in the US would arrive. They hired them to advise bond sellers.


Rubén: And all of these companies came that also had a lot invested in Puerto Rico and they kept investing in Puerto Rico and everything was just peachy.


Luis: But not all companies were like that. Rubén told me that there was one, Nuveen, that regularly sounded the alarm. They were the ones who said that government insolvency was just around corner. Moreover, the firm alleged that the government wasn’t being transparent with its finances.


Rubén: They always said they didn’t believe in Puerto Rico, that Puerto Rico wasn’t a transparent country and that they lied all the time. They had been saying it since 2008.


Luis: In other words, there were people at that point who knew the risks. But there was also a lot of pressure to keep selling.  


Luis: Because you did feel that pressure when you worked inside that system.


Rubén: I felt it and they directly sat me down and told me that if I didn’t do it, they were going to fire me.


Luis: And by 2011 the debt grows, the deficit grows. And for the first time the bonds brokers start to realize that it’s not easy to sell Puerto Rican bonds.


Miguel Ferrer: And we found ourselves in a situation in which there is a ton of product available to sell, already in the inventory, which are mainly mutual funds and local bonds. And it stinks. Bullshit!


Daniel: And who is this?


Luis: That is Miguel Ferrer, a guy with a long history in the Puerto Rican financial sector. When this recording was made, Ferrer was the director of UBS in Puerto Rico, a Swiss bank that had opened an investment management division in the island.  


Miguel Ferrer: We have to cross the bridge between the unsatisfied market we have…


Luis: And what’s happening here is that Ferrer met with a group of brokers that worked for him, and in this recording what you’re hearing is him reprimanding them for not selling the company’s financial products. One of his own sellers took this recording secretly and then leaked it to the media.


Miguel Ferrer: Because the broker’s job, their job, is to find products for the customers, products that work for the customers. It’s not to sit at your desks and wait for something to happen! If not, gentlemen, look for another job!


Daniel: So there were brokers who didn’t want to sell more government bonds?


Luis: Remember this was 2011. Puerto Rico had been in a recession for five years. The industrial foundation of the island had fallen apart. Thousands and thousands of jobs had been lost. And the only thing keeping the government afloat was the bonds. Bonds that companies like UBS turned into financial products that didn’t guarantee the investors any money.


And well, some brokers refused to sell them because they knew that it wouldn’t be in their client’s best interest. That was what Rubén Rodríguez did, but when he refused to sell the company’s products, they put astronomically high monthly goals on him.   


Rubén: Like bringing in a million dollars in one month. Or bringing in five million dollars in three months. If you didn’t meet the goals they imposed on you, that were humanly impossible to meet, because no one wanted to invest in the company, well they took it as grounds to fire you.


Luis: Eventually the situation got to the point that in 2013 the Creditor’s Agencies lowered the rating on a lot of the bonds. Because part of the market is regulated by these agencies that basically check different governments’ ability to payback their loans and give them a rating: specifically A, AAA or AA. To see if they are good for it.


Daniel: It’s like checking the government’s credit.


Luis: Yes, something like that. But for more than 50 years Puerto Rico’s debt had had one of the highest ratings. In five years the government’s credit started to bottom out and it became junk.


And that had terrible consequences for investors like Edwin Batista. I don’t know if you remember, Daniel, but he was the one who started investing his salary from McDonalds and eventually made millions of dollars. In fewer than four years that money started to disappear.


Edwin: From two million to a million. Then a million became 700 thousand. And then 700 became 600, more or less.


Luis: And it didn’t stop there. His account didn’t stop losing value.


Edwin: It’s really funny because you go from being a member at Popular One to a regular bank and then you go on to… you call and no one picks up the phone.


Luis: And something similar happened to Teresa García, the chemist who retired from the pharmaceutical company. She invested the 150 thousand dollars from her retirement in Puerto Rican bonds. And in her case, she could see her investment collapse almost in real time.


Teresa: I check it every day and since 2012, 2013 I’ve seen how the value of my account has plummeted.  


Luis: Why?


Teresa: Because as the bonds’ credit rating dropped, people panicked and started selling and their value decreased.


Luis: Teresa told me that many of her bonds are worth half as much as they were when she bought them. But the problem for the seller is that even though Teresa wants to get rid of them, she’s not going to find anyone who wants to buy them. Not even at a 50 per cent discount.


Teresa: I have a bond that cost 100 dollars, now it costs 50. But if I go to sell on the market, they’ll say, “nah, I’ll give you five. If you want to sell, I’ll give you five.” And I can’t take that risk. I’m going to lose everything.


Luis: And each drop in value brings more concern and anxiety. The big question for Teresa is how she and her husband will adjust now that they’re older and need more money for their medical bills.


Teresa: I’m trying to find a way to be calm because my husband is diabetic and all of this affects him more than me. I mean, I need to find a way to be strong so that he doesn’t feel so bad. But for the two of us, this has been a hard hit.


Luis: And now we’re back where we started, because in June of 2015:


Governor: The public debt is unpayable.


Luis: The governor announces that the bubble has burst completely. People like Edwin Batista lost almost everything they had invested.


Edwin: Look, I wanted to show you this. This is… I kept it as a reminder. This is the last report from Popular Securities with the value of my portfolio.


Luis: A few months ago I went to visit Edwin in Orlando. In 2003 he took out everything he had left and bought a house with his husband. Now they live in a very peaceful suburb. But he still keeps all of his bank statements and he showed them to me. It was an official letter with even more graphs showing a line plummeting. In 2010 Edwin had close to a million dollars in his account. By 2014 he only had five cents left. When I asked him why he kept that bank statement he told me:


Edwin: So I never forget. When you start to forget you start to make mistakes again. This is so I don’t make any more mistakes. That’s why.


Daniel: But did he really lose everything? I mean, he lives in Orlando, in a suburb, he has a nice house.


Luis: It could have been much worse. But also, certainly no one invests to lose, Daniel. And the people who bought Puerto Rican bonds trusted the government. That’s why there is so much anger, so much resentment toward the political class.


Edwin: I even felt, and I’m not afraid to say it, hate toward the country. Something that hurts me a lot because I love my country but I ended up hating it. In a way, the country kicked me out. It hurts a lot.


Luis: And Edwin is part of a much bigger group of people that have left the island to go to Florida. More than 100 thousand Puerto Ricans packed their bags in 2015 and more and more are leaving.  


Meanwhile, in Puerto Rico, there is a group of local bondholders, called Bonistas del Patio, who have come together to put pressure on the government. They are convinced that the government is not telling the truth when they say that they can’t pay them and they want their money back. Last summer I went to a gathering of this group.


And one of the speakers was someone we know well.


Jorge: Good afternoon, everyone, thank you for being here. And thank you for supporting Bonistas del Patio. Thank you very much.


Daniel: The guy who was the government banker.


Luis: Jorge Irizarry. Now he’s the president of Bonistas del Patio. And the message he sent to the government is clear:


Jorge: It’s not that they can’t pay. It’s that they don’t want to pay.


Luis: The truth is Jorge Irizarry’s career has taken an enormous turn. From 2007 to 2008 when he was the president of the Government’s Development Bank, they took out loans of six billion dollars in bonds. But now he defends the bondholders. This isn’t unusual in local financial circles. Puerto Rico is a small island and there is constant turn-around between the government, private banks and brokerage firms.  


And it’s not illegal, but it’s hard to tell where the banker’s interests lie. Jorge Irizarry’s case is even more extreme because in his career he has been a government banker, a private banker and is now a spokesperson for the bondholders. And not just that: Jorge Irizarry has been very clear in his public statements, in which he says that he also invested in Puerto Rican bonds. When I asked him if he had ever had a conflict of interests in all this back-and-forth, this is what he told me:


Jorge: It’s not even about Jorge Irizarry. I am a bondholder, ok? But it’s about the 60 thousand people and their families. All I bring to the table is knowledge and experience. That’s a positive thing I bring to the table. I’m not bringing my baggage with the government, none of it. I advocate for the Puerto Rican people, and I am one too.


Luis: But of course not all Puerto Ricans are bondholders. Still, everyone in the country is facing a complicated landscape of ever-increasing taxes and many austerity measures. In 2009 the government announced that they were laying off more than 16 thousand government employees. And every laid off worker is one more adult who isn’t paying taxes anymore. And that has real consequences. In recent years the government has closed more than 100 schools. They have gotten rid of public transit routes. Government hiring is frozen.


The crisis extends far beyond the bondholders. And that’s why there is a lot of anger and resentment to go around.


Tania: And it’s like I say: I mean, I didn’t take out a loan, my children didn’t take out loans.


Luis: This is Tania Ginés, the mother we met at the beginning of the story. She fought for ten months to keep her daughter’s public school from closing. In the end, she lost the battle. Now her children have to go to a new school which is much farther away; and there are forty students in each classroom, a rat problem in the cafeteria, and there are no programs for children with special needs. But the most difficult part was seeing what closing José Meléndez Ayala did to the community.


Tania: But they didn’t leave us anything. They ransacked the school. They took everything. It was like saying “hold on, we need to hit these people hard”.


Luis: The school closings correspond to the government’s new priorities. The massive cycle of emigration and chronic dent have reduced government services. It’s a way of paying the debt, and the schools in poor neighborhoods have been the first on the list.


Little by little the Puerto Rican Constitution itself has put Tania and many more Puerto Ricans in direct conflict with the country’s bondholders. The constitution says that in the event that there is not enough money, the first people who will get paid are people who hold government bonds. And they assume they’ll get their money even before the police officers and teachers.  


Daniel: And that’s what’s happening now, right?


Luis: The island has been on the verge of coming to that point several times in the past two years. It’s like they’ve been balancing on the edge of insolvency. And it’s going to be really rough when the government has to decide who they’re going to pay and who they aren’t.


At this point there are no good options left. Whatever decision they make is going to profoundly affect someone. And yes, everyone in the island is going to have to bear some of the debt burden… even those who are least able to.




Daniel: Some economists estimate that a third of the Puerto Rican debt belongs to high risk funds, known as vulture funds from Wall Street. Those are firms that speculate on the debt of countries in trouble. And this can make any negotiation to reduce Puerto Rico’s debt even more difficult.


And there’s something else: in September 2016, a Fiscal Oversight Board, selected by the United States Congress, started to operate. This board basically controls the island’s finances. Overriding the local government. The board will be working until Puerto Rico can balance its budget and return to the bonds market. An in the meantime, this board has the power to reduce the government’s services and wages—seeking to reduce expenses wherever it can. It can also demand cutbacks in retired people’s pensions, and it can negotiate cutbacks in compensation for bondholders.


In the end, everything seems to indicate that Puerto Rico has not hit rock bottom yet.


Luis Trelles is a producer with Radio Ambulante. This story was edited by Camila Segura and by me. We’d like to thank Deepak Lamba, Elías Gutiérrez, Robert Smith and Mercedes Martínez. Isabel Vázquez mixed it.


The Radio Ambulante team includes Silvia Viñas, Fe Martínez, Elsa Liliana Ulloa, Barbara Sawhill and Caro Rolando. Our interns are Emiliano Rodríguez, Andrés Azpiri and Luis Fernando Vargas. Carolina Guerrero is our CEO.
Learn more about Radio Ambulante and this story on our website Radio Ambulante tells the stories of Latin America. I’m Daniel Alarcón. Thank you for listening.


Luis Trelles

Puerto Rico


Camila Segura and Daniel Alarcón

Isabel Vázquez