Viewed during a drive along the northeast region of Puerto Rico, the Caribbean landscape, usually a festival of lush greenery, is dotted with trees withering from a month-long drought. Dust blown from the Sahara in northern Africa has dulled the bright sun with a haze that shrouds everything in uncharacteristic gray.



The darkening skies mirror the bleak outlook of an island that US law calls a unincorporated territory and others call one of the world’s last colonies. Puerto Rico is floundering under $73bn in debt and a rapidly deteriorating ability to pay.

The unemployment rate is hovering at 14%. There has been a surge in violent crime. A health care crisis has seen doctors leave the island at a rate approaching 500 per year and the government is discussing an 11% cut to Medicare and Medicaid services in 2016. There has been a wave of school closures. No wonder, then, that upwards of 200,000 people have left in the last 10 years.



“What I see is a generalized feeling of stagnation,” said Universidad del Este politics professor Manuel Almeida, who struggles with how long he can afford to continue living on the island of his birth with his wife and child. “We don’t know where we’re going.”



More bad news seems to come every day to Puerto Rico, but in the US the drama is hardly acknowledged outside of the business press. This week government bonds fell to a seven-week low after David Chafey, chairman of the Puerto Rico-owned Government Development Bank, resigned for personal reasons, creating a power vacuum as concerns mount over whether the island’s electric power authority will be able to make a 1 July bond payment.



The current debt crisis is largely assumed to have resulted from years of irresponsible borrowing by the Puerto Rican government, as if it were a consumer using one credit card to pay off another. But the US government deserves a considerable share of the blame. The Jones Act that gave Puerto Ricans US citizenship in 1917 in effect made Puerto Rico a US dependent. Puerto Rico’s government cannot make trade agreements with other countries. No trading ships can dock in its ports without flying the American flag.



The island’s economy began to falter with the recessions caused by the oil crisis of the 1970s. In response, the tax code was amended and US businesses were allowed to eliminate taxes on profits made in Puerto Rico. But in 1996 a 10-year phase-out of the tax break began. Its end signaled the beginning of a 2006 recession that island economists are now calling a depression.



The government had already begun borrowing in the 1970s and unemployment grew as multinationals left the island to pursue lower wages after the implementation of North America Free Trade Agreement in the early 1990s, and a construction bubble driven by infrastructure spending in the early 2000s collapsed. The borrowing accelerated, and now the ratio of debt to Gross Domestic Product – the broadest measure of a country’s economy – is a little over 100%, making it unsustainable.



Wall Street firms have also played a part in exacerbating the crisis. Recent credit downgrades allowed Wall Street to demand hundreds of millions more in short-term lending fees, credit-default-swap termination fees, and higher interest rates. Between 2006 and 2013, Puerto Rico raised $62bn in bonds, generating $1.4bn in fees for Wall Street banks and lawyers, according to an analysis by the Wall Street Journal. The island has more municipal debt per capita than any US state.



Puerto Rico’s territorial status has helped trigger the crisis in the sense that its bonds are triple-tax exempt, the case in all municipal bonds issued by US territories. This attracted hedge funds and the more sinister vulture fund speculators that specialize in high-risk bonds for a big payoff in the end.



But since Puerto Rico, as a territory, cannot declare bankruptcy, vulture funds, which own about 24% of the debt, have taken a hard line on any attempt by the government to restructure the debt.



“As the European Central Bank began bailing out Greece and other troubled economies, the vulture funds began to move to Puerto Rico,” said Hereiberto Martínez Otero, economic adviser to two House representatives. He said that their insistence on repayment in full is dubious considering they knew the bonds were high risk when they made the investment.



A proposal by Puerto Rico’s Fundación Francisco Carvajal suggests that the Federal Reserve Act can allow the Fed to buy up many of these bonds in a way that would not be considered a bailout per se. “It would be a much-needed injection of liquidity. If they gave $85bn to AIG, why not $4bn to Puerto Rico?” said Juan Aponte, who helped author the just-published report. Still, default is imminent by the fall, University of Puerto Rico economist Argeo Quiñones Pérez insists. “This is going to wind up in federal court,” he said.



Even in the best-case scenario, debt restructuring will most likely require further painful austerity, something already carried out through the recent passage of an 11.5% sales tax, higher than any state in the union, and further cuts in government jobs. “We have already seen that these austerity policies have had a worsening effect on peripheral economies,” said Martínez.



Meanwhile, Puerto Rico’s middle-class experiment seems to be dying a slow, painful death, with depopulation and disinvestment leading to greater inequality and a vacuum for further privatization. A bustling café called Latte Que Latte in San Juan’s business district was started by local entrepreneurs who wanted to find a way to stay on the island by creating a niche business that serves artisanal coffee and pastries to millennials who, for the moment, feel compelled not to flee their homeland.



Yet one of the café workers, 57-year-old Jesús Santana, can trace his own history of circular migration, back and forth to the mainland, as a constant through generations. “I’ve been back and forth to the mainland three times already,” he said. “What’s different now is people who are leaving have no choice. People have lost their homes and cars. I feel terrible about my friends having to leave, but I want to stay, and for the moment, I still can.”

