This once-prosperous corner of the Caribbean has fallen on hard times, with an inability to pay off crushing debt driving millions into poverty – and out of the country: ‘When the ceiling’s coming down you don’t wait to get squashed’

A few blocks south from the luxury seafront hotels built in the style of Spanish colonial mansions, cars sit rusting and ransacked near abandoned homes tattooed with graffiti. Groups of jobless men sit on the stoops of apartments and bars, living in a San Juan far removed from the version seen by tourists on beach vacations.

Economic exodus means two-thirds of Puerto Ricans may soon live in US Read more

As Greece threatens the European order with its inability to pay a suffocating debt, Puerto Rico teeters on the verge of similar collapse. The crisis has driven millions of American citizens into poverty, out of their homes and – increasingly – on to the US mainland.

Years of migration and mismanagement have left San Juan, once one of the wealthiest ports in the Caribbean, in a state of decay. Windows gape open on gutted colonial homes. Aluminum siding seals off store after store where “liquidation” or “for sale” signs hang. Graffiti overwhelms whole blocks of high-rises, and the street art is swallowed by vines.

In downtown San Juan, upscale restaurants and shops sit amid empty apartment blocks and the angry insect hum of damaged power lines. In Old San Juan, the colorful facades and cobblestone streets end at the cliffs, where a mound of ramshackle homes – a project named the Pearl – juts over the ocean, and confronts tourists with some of the 45% of Puerto Ricans who live below the poverty line.

In the market plaza of Santurce, restaurant employee Rafael Fernandez, 22, said the crisis has pervaded life: “It affects everything we do or can’t afford to do. We’ve lost our dignity, our standing. We feel bad.”

Puerto Rico’s “death spiral”, as governor Alejandro García Padilla has called it, stems from decades of government mismanagement and dependency on federal aid, the high-risk investments of Wall Street firms chasing tax breaks – and the domino effect of trying and failing to pay back billions of debt. Years of borrowing and poor planning has led to water rationing and intermittent electricity.

Facebook Twitter Pinterest Old San Juan, Puerto Rico. Photograph: Alan Yuhas

Over the past year, hundreds of schools, shops and factories have closed, and unemployment has soared to twice the national average.

Unemployment drives crime, crime devastates real estate, and except for the most vulnerable – the poor, sick and elderly – almost everyone who can leave does. Hundreds of thousand have left in recent years, a swing of about 1.5 million people since 2003.

Life on the island mirrors conditions in Detroit when the Michigan city confronted its $18bn debt – except Puerto Rico’s total bill amounts to $72bn.

Months of crisis have created an atmosphere where despair and resignation alternate with anger and fear. Behind the counter at a coffee shop in the market strand of Rio Piedras, Beatriz Perez, 34, said she didn’t know how she will be able to help support her family if the crises worsens.

“Half the stores have closed, so nobody has money,” she said. “So nobody comes around, and we work fewer hours. Salt, bread, the basics cost more, but we can’t charge customers more because so few come by.”

Perez said that family kept her in Puerto Rico: “I hope it gets better, but honestly I don’t know. It’s so bad.”

But Puerto Rico’s unique relationship with the US adds another layer of complexity: as it is a United States territory rather than a state, the island lacks authority to have its cities restructure debt or file for bankruptcy as Detroit did in Michigan. Instead it must ask permission from Congress for financial powers or for exemptions from restrictive trade laws, rules that benefit US shipping companies and investment firms.

Location of Puerto Rico

Meanwhile the terms of Puerto Rico’s engagement with the mainland restrict its ability to open up trade or investment. As a commonwealth, it is bound by laws drafted not long after Americans forced the Spanish off the island in 1898. The 1920 Jones Act requires Puerto Rican ports only do business with American ships, prohibiting deals with many of the island’s Latin American neighbors and giving American shipping companies almost total control of prices.

Although Puerto Ricans don’t pay federal income tax – an attraction for companies – the island has raised local taxes, increasing the cost of living and warding many businesses away. Residents can pay as much as 33% in local taxes, gas prices hover over $3 a gallon, and the same amount of milk costs almost $7. In Miami, gas costs $2.80, milk nearly $3 less.



Music shop owner Tony Cuñarro, 46, was blunt: “Business is terrible – there are no customers.”



Cuñarro waxed fatalistic about whether Democratic governor Padilla – who last week said the debt was “unpayable” – could handle the crisis. “They won’t fix anything,” Cuñarro said. “They’re all the same, red or blue, they all misuse the money.”

The slow-motion crisis has already caused a wave of migration. Departing professionals and people with higher degrees have drained the island of doctors, engineers and others who could help solve the crisis.

Jose Miguel Saavedra, 62, a retired professor for the University of Puerto Rico, said he had told his two daughters that he’s been talking with realtors in Miami.

Facebook Twitter Pinterest Rio Piedras, San Juan, Puerto Rico. Photograph: Alan Yuhas

“When the ceiling’s coming down you don’t wait to get squashed by your house,” he said. “I see the writing on the wall.”

The writing has long been ominous. Ratings agencies downgraded Puerto Rico’s credit and bonds to junk earlier this year. Hedge funds that bought up high-risk bonds now demand 100% returns. Since 1996, tax exemptions for corporations have been expiring, and companies promptly left. Last week former IMF economists released a report that not only said the island’s economy was in tatters but recommended radical cuts to services.

In practical terms, the debt spawns problem after problem, Saavedra said: “Nothing works here, nothing.”

Poor planning means water rationing during drought and “kind of risky” tap water, he said. His sister lives in a gated community that pays for private security; Saavedra does not. Electricity will occasionally conk out, and driving home at night he noticed that many roads are conspicuously dark.

“I thought the government was saving money on public lighting. Then I discovered that the copper was burglarized from the wires.”

More than 150 schools have closed in the past year, and many economists and lawmakers urge even greater cuts to education staff. Enrollment in public schools has plummeted as tens of thousands migrated away – forcing many families to travel long distances to get to a working school.

“In the middle class, if we want our children to learn anything we have to send them to private schools that cost a lot.”

Saavedra helps one of his daughters pay tuition for his grandson because despite her master’s degree she can’t find work. He said he would have to cut her off soon, and that he’s encouraged her to follow him to the states.

‘It’s all bankrupt’

Thousands have lost jobs in the past few years. Edgar Correa, an accountant, said that in 2006 his construction firm employed about 1,200 people; today it employs fewer than 400. The island’s 12.4% unemployment rate is more than double that of the 50 states.

Correa remains in Puerto Rico to care for his mother, who depends on Medicare, a federal benefit that the commonwealth receives in lesser measure than do the states. “It’s a hard situation to see people that you love leave, to see empty spaces on every block,” he said. “There are no easy solutions anymore.”

Facebook Twitter Pinterest People listen as Puerto Rican governor Alejandro Garcia Padilla addresses the island’s residents in a televised broadcast regarding the governments $72bn debt. Photograph: Joe Raedle/Getty Images

Manuel Rodriguez Banchs, a labor attorney, said that the unions he represents have had more than 1,500 jobs cut in recent years as hotels, canning and distribution companies closed. “Without work, people can’t make mortgage payments,” he said. “I’ve never seen so many workers filing for bankruptcy.

“Politically, economically and fiscally, it’s all bankrupt.”

At least one city employee agreed, asking that her name not be used for fear that her hours would be cut as she had seen for others. She likened Puerto Rico to a house whose owners never learned how to build one: “Better to blow it all up and start over.”

City lawmaker Luís Gallardo had a different metaphor: “It’s sort of like a drug rehabilitation program where we first acknowledge the debt is unpayable, that we can’t necessarily keep schools open on the one hand and pay bondholders on the other.”

Gallardo opposes further austerity measures, noting that continued tax hikes to pay off debt would convince more people to leave. “It’s very hard to make long-term projections when our labor force is literally jumping ship.”

Ataveyra Hernandez, a former adviser to the governor, said that cycles of desperation and poverty would send the island spiraling into even worse conditions should the government cut off services to pay debt.

“It always reminds me of Louisiana,” Hernandez said. “We’re going to be the next New Orleans when a Katrina happens, but we don’t even have the resources or aid or options they have.”

Facebook Twitter Pinterest Closed shops along Rio Piedras, San Juan, Puerto Rico. Photograph: Alan Yuhas

She said domestic violence was increasing alongside poverty, and that unemployment was driving men and women into “the informal economy” – an economy manifest in the rail-thin, haggard man who paid no heed to nearby casino security as he snorted powder off his nail, and in the handicapped man peddling packets of spice in Rio Piedras.

“It’s more lucrative to sell drugs than to work in Burger King, and Burger King wages won’t pay for a home,” Hernandez said. “People are making decisions to survive.”

“We were all living on a fantasy for 40 years that just came to an end,” said senator Ramón Nieves, about Puerto Rico’s dependency on federal money and the tax breaks doled out for decades to corporations. “We have to deal with reality, but we cannot become a country in the service of our public debt.”

He said that Puerto Rico was ready to make sacrifices so long as those on the mainland – hedge funds and the federal government – could also renegotiate and sacrifice. But he and most others opposed a bailout, and no one appealed to the US based on any shared responsibility or identity as Americans.

“Nobody here celebrates the Fourth of July,” Nieves said. “We don’t consider that a celebration of our country.”

His constituents agreed – or were at least indifferent. Near monuments to Juan Ponce de Leon and Simon Bolivar in Old San Juan, 15-year-old Diego Del Real called the holiday “an excuse to barbecue”. Fernandez said “the whole world celebrates an independence day, but we don’t. We’re strange.”

San Juan nonetheless usually puts on a show in the bay, locals said, with bands and a barge that launches fireworks within sight of the Spanish fortresses of the old city. But on Saturday night the skies were clear and the city mostly quiet, sounding mostly of strong winds that suggested a storm out at sea.