Puerto Rico's bankruptcy leaves US island facing hard times

In San Juan, chants of "the debt is illegal" and "colonial dictatorship" fill the morning air, as students from the University of Puerto Rico block a palm-lined avenue.

Across the street, a board of overseers imposed by Washington is meeting with student representatives to hear their demands as they mull ever deeper cuts to pull this "Greece of the Caribbean" out of bankruptcy.

To some, it's a necessary corrective to get a stumbling Puerto Rico back on its feet.

But to others like Mariana de Alba, a 27-year-old law student at the protest, it all smacks of colonial subjugation.

"What they've come to do is to cut back the public budget and the island's public services to give it to the big bond holders, to pay off a debt that we don't even know whether it is legitimate," she says.

The Financial Oversight and Management Board for Puerto Rico -- made up of seven members appointed by the US president and one by the island's governor -- is tasked with getting a handle on the territory's crushing $74 billion debt.

But in an island proud of a cultural identity expressed in its language, food and music, the board is widely seen as having an intolerable stranglehold on Puerto Rican life.

As in Greece, where the arrival of the European "troika" repulsed much of the population, Puerto Rico had long shrugged off the dangers of unrestrained borrowing -- until the crash.

But unlike its Mediterranean counterpart, Puerto Rico is not independent.

A former Spanish colony that became an American territory at the end of the 19th century, the island of 3.5 million has had its own government since 1952 when it became a "free associated state," or commonwealth, of the United States.

On Sunday, its inhabitants will vote on its relationship with the United States, in a non-binding referendum.

They can choose from three options -- statehood, independence or another form of so-called "free association" or the status quo.

- 'Blind cuts' - 

Even though Puerto Ricans are American citizens, they cannot vote in the US presidential elections. 

And the Spanish-speaking island, with its white beaches and turquoise seas, can seem far away from Washington.

But its economic ties to the US are still very tight -- too much so, some say.

Long a popular tourist destination, Puerto Rico also enjoyed an exemption from US federal taxes that led many US companies to set up manufacturing operations on the island, an arrangement that lasted for decades until the tax breaks were ended in 2006.

To offset the loss in revenues, Puerto Rico turned to the US municipal bond markets for relief, offering investors attractive tax-exempt bonds that provided ready cash but sank the island deeper into debt.

As unemployment rose and recession set in, Puerto Ricans left the island in droves.  One in 10 Puerto Ricans emigrated over a 10-year period.

The exodus -- a massive population shift that has left more Puerto Ricans in the United States than in Puerto Rico --aggravated the debt crisis by siphoning off the island's tax base.

Unable to repay its creditors, Puerto Rico declared bankruptcy in early May. 

The bankruptcy -- the largest ever by a local US government -- caused barely a ripple in the United States, but in Puerto Rico, it has fueled joblessness and protests.

At the University of Puerto Rico, closed since the end of March by student protests, chairs and desks have been chained to its gated entrance. 

"They have to stop making blind cuts," said Alba.

- 'In shock' -

Governor Ricardo Rossello -- who took office in January, and now lives in La Fortaleza, an imposing walled palace overlooking San Juan's harbor -- has presented an austere 10-year plan to rescue the economy.

But the 38-year-old governor was unable to persuade creditors to lower debt payments to a "sustainable level." So he declared bankruptcy.

It's now up to the US courts to resolve the matter.

In the face of this financial morass, the two parties that have alternated in power since the 1950s -- Rossello's New Progressive Party and the opposition Popular Democratic Party -- are blaming each other for the mess.

Rossello "has had to do the work that the previous administration did not do," said Christian Sobrino, the governor's chief economic adviser and the head of the Government Development Bank for Puerto Rico.

Sobrino is optimistic that Rossello can stabilize the island's economy within four years, relying on private investment, particularly in the tourism industry, which he feels has room to grow.

But relaunching the island's economy is likely to be more difficult under US President Donald Trump, who is pushing for deep cuts in food assistance and medical insurance programs for the poor. And Trump has spoken out on several occasions against bailouts for Puerto Rico.

"People are in shock. They have never experienced a situation like this one," said Gerson Guzman, head of the General Workers Union, which represents health care workers.

The cutbacks "could provoke the collapse of Puerto Rico's public health system," which faces threats like the mosquito-borne Zika virus, he warns.

Outside Puerto Rico's biggest public hospital, where patients and their families wait in the heat for their turn to see a doctor, Ana Quinones, a 44-year-old pharmacy technician, says her salary has been frozen for four years.

Her two daughters dream of moving to the United States.

"We have already established ourselves. But our children, our grandchildren -- what are we going to leave them?" Quinones asks.