Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

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KnightExemplar
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Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby KnightExemplar » Mon Jun 29, 2015 7:49 pm UTC

Puerto Rico’s governor says island cannot pay back $70 billion in debt, is near ‘death spiral’

And here's a story from 2013, about Puerto Rico's economic ails. TLDR is manufacturing has left Puerto Rico, and Puerto Rico citizens (who are US Citizens) are simply migrating to the mainland for better opportunity. Economic Death Spiral is about in the island territory.

While the EU worries about their potential Greexit issues, I'd like to bring up a distinctly American debt issue as well. When Detroit went bankrupt a few years ago, it went so with roughly $20 Billion in debt. A Puerto Rico default on its $70+ Billion debt would make Detroit's bankruptcy look puny in comparison. It seemed like Detroit's default rocked municipal bond markets (popular amongst investors as municipal bonds are federal tax-free).

I dunno much about the American territory Puerto Rico: aside from the fact that they're our territory. But any thoughts on this issue?
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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counti

Postby Tyndmyr » Mon Jun 29, 2015 8:12 pm UTC

Well, there's always this related story: http://www.washingtonpost.com/blogs/won ... imum-wage/

Now, obviously, a minimum wage that is high relative to the median wage isn't the *only* challenge they face, but it does effectively remove a bunch of people from viable employment, and it contributed to the downfall of the economy/jobs going elsewhere. So, you end up with a miserable growth rate, people bailing out of the country for brighter futures elsewhere, and a labor participation rate that's been going to hell for a while now.

This didn't happen overnight, it's a result of several trends that have been going on for a good long while now.

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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby KnightExemplar » Wed Jun 29, 2016 11:28 pm UTC

https://www.washingtonpost.com/news/pow ... ebt-cliff/?

Puerto Rico PROMESA bill has passed, which will allow Puerto Rico to enter into a bankruptcy-like state, where their financial situation will be assessed (and partially controlled) by a committee and renegotiated.
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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counti

Postby LaserGuy » Thu Jun 30, 2016 2:42 am UTC

Tyndmyr wrote:Well, there's always this related story: http://www.washingtonpost.com/blogs/won ... imum-wage/

Now, obviously, a minimum wage that is high relative to the median wage isn't the *only* challenge they face, but it does effectively remove a bunch of people from viable employment, and it contributed to the downfall of the economy/jobs going elsewhere. So, you end up with a miserable growth rate, people bailing out of the country for brighter futures elsewhere, and a labor participation rate that's been going to hell for a while now.

This didn't happen overnight, it's a result of several trends that have been going on for a good long while now.


This seems like an odd point to be focusing on considering all of the many other well-documented problems that lead to this crisis.

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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counti

Postby sardia » Thu Jun 30, 2016 2:58 am UTC

Tyndmyr wrote:Well, there's always this related story: http://www.washingtonpost.com/blogs/won ... imum-wage/

Now, obviously, a minimum wage that is high relative to the median wage isn't the *only* challenge they face, but it does effectively remove a bunch of people from viable employment, and it contributed to the downfall of the economy/jobs going elsewhere. So, you end up with a miserable growth rate, people bailing out of the country for brighter futures elsewhere, and a labor participation rate that's been going to hell for a while now.

This didn't happen overnight, it's a result of several trends that have been going on for a good long while now.

Looks like someone forgot to dig a little deeper before posting his anti-minimum wage sidebar.
In the article that was linked, emphasis mine.
https://www.washingtonpost.com/news/won ... erto-rico/
Alida Castillo-Freeman of the National Bureau of Economic Research and Richard Freeman of Harvard University took a look at what happened during that time. The results were clear: Wages had risen and clustered around the new $3.35 minimum. Employment had dropped by about nine percent, compared to what it would have been if Puerto Rico’s minimum wage-to-average wage ratio had stayed the same as it was on the mainland. Most of those jobs came from low-paying manufacturing companies that might have been on the margin anyway.

In retrospect, Freeman says, the island lost nowhere near as many jobs as he expected.
“What we found was that there were a couple industries that really got bopped -- places that were already going downhill,” he says, reasoning that the lost jobs, while painful for the affected employees, might have been inevitable. “If you’re so unproductive that you can’t pay a little bit more, than maybe you don’t belong in a modern economy.”“Put a zero after your wage and mine, and we know that the employer’s going to get rid of us,” Freeman says. “But they never seem to push the minimum really into that dangerous territory. Twelve dollars in three years is not going to incredibly shake up Mississippi.”


Oh, and I heard the GOP negotiated the terms so it was biased more towards the hedge funds than Democrats would have liked. I'm guessing this was better than default, but I'm not sure why considering most of the damage has already been done.

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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby CorruptUser » Thu Jun 30, 2016 3:04 am UTC

So, Puerto Rico has some of the highest electricity prices in the US at ~27 cents/KWh. Over 50% of Puerto Rico's electricity comes from petroleum. Petroleum that's imported, which is part of what's causing the deficit. At the same time, it's an island with decent amounts of wind offshore. Why not invest a couple billion in some offshore energy?

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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby sardia » Thu Jun 30, 2016 3:10 am UTC

Is offshore wind power viable? And competitive?

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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby CorruptUser » Thu Jun 30, 2016 3:33 am UTC

Cost of energy/kwh
Spoiler:
Image


Note that it's in euros, so it's between 17 to 25 cents per Kwh, which is still cheaper than current electric prices in Puerto Rico. So yeah, competitive.

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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby BattleMoose » Thu Jun 30, 2016 2:35 pm UTC

A lot of the issues are because of the relationship between Puerto Rico and the USA. In terms of laws and taxes and funding but the short of it is that Puerto Rico was simply running a deficit for too long and grew a large debt. Although its debt to GDP isn't as large as many other successful countries around the world with highly functioning economies, including UK and Japan. For whom continuing to grow their economies is a critical issue for managing their debts. It seems collection is a part of the issue too.

But here's the kicker. With the austerity measures in place and a very bleak future for so long, young people who can work simply move to the USA and live much economically richer lives than what would ever be possible in Puerto Rico. At times its population is declining, leaving fewer people responsible for the debt. Consequently it has extremely limited capacity to grow its economy and more and more people can jump ship. Its effectively completely fucked imho.

Electricity:
Spoiler:
Its an island nation that imports fuel and consequently electricity prices are just much more expensive. The inability to control the wind means that the country would need backup generators that could meet the entire peak demand of the nation, a thing that pretty much all, estimates of cost of electricity ignore. The only way to cost, the cost of electricity is to examine the grid in a completely holistic manner and compare it to a different grid. And when that is done, it is found that the cost of the backup generating capacity, which effectively means you need twice the generating capacity that you would otherwise need, just makes the idea completely untenable.

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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby sardia » Thu Jun 30, 2016 3:09 pm UTC

Puerto Rico has a distinct lack of states rights which people forget about. Basic example is there aren't allowed to import goods without getting it from an American ship. So you need to ship goods to the US, move it to an expensive us ship, and then reship it to the island. The list of bad stuff gets progressively worse from there.

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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby CorruptUser » Thu Jun 30, 2016 3:14 pm UTC

Is there a list somewhere with all the bad stuff?

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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby sardia » Thu Jun 30, 2016 3:46 pm UTC

http://www.nytimes.com/interactive/2016 ... .html?_r=0
Puerto Rico amassed such a mountain of debt, but there were other crisis factors at play. Corporate tax breaks designed to spur economic growth for Puerto Rico expired in 2006, and manufacturing and other business activity began to leave the island. When jobs started leaving, people followed or lost their jobs, reducing Puerto Rico’s tax revenue. The government filled the gaps by borrowing even more.

Unlike American cities such as Detroit, Puerto Rico isn’t allowed to file for a court-arranged bankruptcy reorganization. And unlike sovereign nations such as Greece, it can’t seek emergency assistance from the International Monetary Fund.

This is some of the things wrong with the island. I was referring to the Jones act.

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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby DanD » Thu Jun 30, 2016 9:18 pm UTC

CorruptUser wrote:Cost of energy/kwh
Spoiler:
Image


Note that it's in euros, so it's between 17 to 25 cents per Kwh, which is still cheaper than current electric prices in Puerto Rico. So yeah, competitive.


Don't forget that small scale and utility scale PV as well. Puerto Rico gets about half again as much sun as the best parts of Germany (assuming that's what your chart is based on). So rooftop solar is going to be significantly cheaper per kWh, even if they don't have the land for utility scale installations. And I know panel costs will be noticeably higher, but labor costs should more than offset that.

As far as the back-up generation requirements, it's an excellent location for pumped storage, which would allow normalization of an irregular cycle.

Also, offshore winds are much less prone to extended dead periods, which minimizes the amount of storage needed.

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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby Mutex » Thu Jun 30, 2016 10:28 pm UTC

My understanding is that since PVs convert light into electricity, not heat, and heat actually makes the PVs less efficient due to increased electrical resistance, that solar power in hotter climes isn't actually more powerful than in temperate ones. Unless you countered the heat somehow, by running water under the PVs to cool them down or something.

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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby Tyndmyr » Thu Jun 30, 2016 10:47 pm UTC

Also, usually there's a substantial investment involved in changing over power infrastructure. Even if it's a good long term investment, that whole "being wildly in debt" thing tends to make getting financing for up front costs rather more difficult.

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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby BattleMoose » Fri Jul 01, 2016 6:27 am UTC

DanD wrote:As far as the back-up generation requirements, it's an excellent location for pumped storage, which would allow normalization of an irregular cycle.

Also, offshore winds are much less prone to extended dead periods, which minimizes the amount of storage needed.


There's this idea, that renewable energy is economically feasible for other people. And there are always these kind of arguments that it makes sense for Puerto Rico to do renewable energy because importing petroleum is so expensive. Which is true, but that in and of itself does not make it economically viable. Without actually running the numbers and costing the different systems you're just guessing.

Even in the USA, with all its dams and pumped storage potential, wind/PV make up less than 5% of electricity generation. That is still low enough that they generally don't have to worry about large shifts in output from the wind turbines. Usually. Note the date of the event.
http://www.reuters.com/article/us-utili ... 2920080228

Worth reading
https://www.eia.gov/state/print.cfm?sid=RQ

In 2010, Puerto Rico's legislature enacted a renewable portfolio standard (RPS) that required PREPA to get 12% of its electricity from renewable sources starting in 2015, scaling up to 15% by 2020 and 20% by 2035. Technologies meeting the standard include hydroelectric, solar PV, wind, geothermal, biomass including municipal solid waste, and ocean and tidal energy generation.108,109 PREPA determined that there was neither enough time to build new renewable facilities nor enough flexibility on its generating system to integrate the renewables needed to meet the 2015 RPS target. PREPA has proposed reduced goals of 10% renewable electricity by 2020, 12% by 2025, and 15% by 2035. In its Integrated Resource Plan (IRP), PREPA is proposing capital investment in conventional generating resources so more variable renewable sources from independent power producers can be accommodated on the island grid.


It's PREPA's job to supply Puerto Rico with electricity. Its a government owned corporation. Unless they are completely and utterly incompetent, they have run the numbers and are implementing the most economical solution possible. That's their job. They are only going down the renewable energy pathway because they are being dictated to by law. Not for economic reasons. They are even being sly and developing a policy that encourages independent power producers to invest in renewable energy. Because they know what a lousy investment it is and they don't want to do it with the resources they have.

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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby Mauthe Dhoo » Fri Jul 01, 2016 12:01 pm UTC

sardia wrote:Puerto Rico has a distinct lack of states rights which people forget about. Basic example is there aren't allowed to import goods without getting it from an American ship. So you need to ship goods to the US, move it to an expensive us ship, and then reship it to the island. The list of bad stuff gets progressively worse from there.


The Jones Act only applies those cabotage requirements on coastwise transport, i.e. moving goods from one point in U.S. territory to another point in U.S. territory. Foreign imports aren't subject to that constraint. So, goods originating from the U.S. need that expensive ship, but no one would need to ship something from abroad to the mainland before a PR final destination.

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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby DanD » Thu Aug 25, 2016 9:18 pm UTC

BattleMoose wrote:
DanD wrote:As far as the back-up generation requirements, it's an excellent location for pumped storage, which would allow normalization of an irregular cycle.

Also, offshore winds are much less prone to extended dead periods, which minimizes the amount of storage needed.


There's this idea, that renewable energy is economically feasible for other people. And there are always these kind of arguments that it makes sense for Puerto Rico to do renewable energy because importing petroleum is so expensive. Which is true, but that in and of itself does not make it economically viable. Without actually running the numbers and costing the different systems you're just guessing.

Even in the USA, with all its dams and pumped storage potential, wind/PV make up less than 5% of electricity generation. That is still low enough that they generally don't have to worry about large shifts in output from the wind turbines. Usually. Note the date of the event.
http://www.reuters.com/article/us-utili ... 2920080228

Worth reading
https://www.eia.gov/state/print.cfm?sid=RQ

In 2010, Puerto Rico's legislature enacted a renewable portfolio standard (RPS) that required PREPA to get 12% of its electricity from renewable sources starting in 2015, scaling up to 15% by 2020 and 20% by 2035. Technologies meeting the standard include hydroelectric, solar PV, wind, geothermal, biomass including municipal solid waste, and ocean and tidal energy generation.108,109 PREPA determined that there was neither enough time to build new renewable facilities nor enough flexibility on its generating system to integrate the renewables needed to meet the 2015 RPS target. PREPA has proposed reduced goals of 10% renewable electricity by 2020, 12% by 2025, and 15% by 2035. In its Integrated Resource Plan (IRP), PREPA is proposing capital investment in conventional generating resources so more variable renewable sources from independent power producers can be accommodated on the island grid.


It's PREPA's job to supply Puerto Rico with electricity. Its a government owned corporation. Unless they are completely and utterly incompetent, they have run the numbers and are implementing the most economical solution possible. That's their job. They are only going down the renewable energy pathway because they are being dictated to by law. Not for economic reasons. They are even being sly and developing a policy that encourages independent power producers to invest in renewable energy. Because they know what a lousy investment it is and they don't want to do it with the resources they have.


And even six years is a huge shift in the cost and flexibility of solar installations. In the most recent data I could find, the cost had dropped from ~$7/watt installed in 2010 to ~$4/watt in 2014, installed. The lack of storage and demand adjustment capability on the grid is definitely a concern, and will continue to be so, but it is everywhere, and the effort to install it needs to be made.

Mutex wrote:My understanding is that since PVs convert light into electricity, not heat, and heat actually makes the PVs less efficient due to increased electrical resistance, that solar power in hotter climes isn't actually more powerful than in temperate ones. Unless you countered the heat somehow, by running water under the PVs to cool them down or something.


Increased temperature can hurt the efficiency of PV cells, but not as much as increased sun helps it. So, while a cooler climate with more sun would be best, a hot climate with more sun is going to be better than a cool climate with less sun (for the practical range of such found on earth).

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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby cyanyoshi » Mon Jun 12, 2017 1:50 am UTC

https://www.nytimes.com/2017/06/11/us/p ... ehood.html

Well, this is an interesting development.

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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby HES » Mon Jun 12, 2017 1:06 pm UTC

The opposition boycotted the vote, hence the abysmal turnout. Meaningless result.
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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby sardia » Mon Jun 12, 2017 2:25 pm UTC

HES wrote:The opposition boycotted the vote, hence the abysmal turnout. Meaningless result.

Even if turnout was really high, there's no way that Republicans would risk a blue state coming into the country. I'm not sure if even the Democrats would want a fairly red mirror state either.

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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby KnightExemplar » Mon Jun 12, 2017 2:50 pm UTC

HES wrote:The opposition boycotted the vote, hence the abysmal turnout. Meaningless result.


If a large portion of people boycotted the Presidential Election, would people call it a meaningless result? This entire concept is odd to me.

A typical off-year election in the USA is like... 35% of the voting population anyway (36.4% in 2014). Voting numbers in the US are downright abysmal. 23% of the voting population could have won if the numbers reached the typical voting population.

The question is how "legitimate" are the opposition's claims that the election was rigged?
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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby Mutex » Mon Jun 12, 2017 2:56 pm UTC

And can't anyone just boycott an election and call it rigged if they know they'd lose it anyway? Seems like a way of delegitimising a vote that you know won't get an answer you like.

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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby Opus_723 » Mon Jun 12, 2017 5:42 pm UTC

sardia wrote:
HES wrote:The opposition boycotted the vote, hence the abysmal turnout. Meaningless result.

Even if turnout was really high, there's no way that Republicans would risk a blue state coming into the country. I'm not sure if even the Democrats would want a fairly red mirror state either.


I'm not understanding what "red mirror" means, could you clarify?

I'm curious how the political problem of Puerto Rican statehood compares to the admission of the existing states. Were there problems admitting Hawaii and Alaska because of their preexisting party leanings? (I don't know what those leanings looked like back then).

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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby sardia » Mon Jun 12, 2017 7:40 pm UTC

Opus_723 wrote:
sardia wrote:
HES wrote:The opposition boycotted the vote, hence the abysmal turnout. Meaningless result.

Even if turnout was really high, there's no way that Republicans would risk a blue state coming into the country. I'm not sure if even the Democrats would want a fairly red mirror state either.


I'm not understanding what "red mirror" means, could you clarify?

I'm curious how the political problem of Puerto Rican statehood compares to the admission of the existing states. Were there problems admitting Hawaii and Alaska because of their preexisting party leanings? (I don't know what those leanings looked like back then).

Democrats would only want Puerto Rico as a state if it was tilted towards Democrats in coming elections. Republicans would only do it if Puerto Rico was leaning red, and Democrats would oppose it.
If you wanted examples, look at the civil war States and the Missouri compromise. States were coming into the union two at a time to prevent free States or slave States from getting a majority in Congress.

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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby Liri » Tue Jun 13, 2017 3:57 am UTC

The turnout was like 25%. They can't take that to Congress (Congress?) and claim they have a mandate to demand statehood.

On a tangent, one of my coworkers is Puerto Rican and I talked with him about the statehood question a few weeks ago. He was pretty ambivalent about it.
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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby Diadem » Tue Jun 13, 2017 10:31 am UTC

Liri wrote:The turnout was like 25%. They can't take that to Congress (Congress?) and claim they have a mandate to demand statehood.

97% in favor among those 23% though. That means they still would have won with a much, much higher turnout. It seems like a reasonably strong mandate to me, at first glance. If there were other problems with the election beyond the boycott that's another story, but it's not exactly rare for US elections to be decided by much smaller mandates. A turnout of 40% with a 55% in favor result would be a much smaller mandate, and results like that are very common in US politics.
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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby Chen » Tue Jun 13, 2017 11:49 am UTC

Diadem wrote:97% in favor among those 23% though. That means they still would have won with a much, much higher turnout. It seems like a reasonably strong mandate to me, at first glance. If there were other problems with the election beyond the boycott that's another story, but it's not exactly rare for US elections to be decided by much smaller mandates. A turnout of 40% with a 55% in favor result would be a much smaller mandate, and results like that are very common in US politics.


According to the NYtimes article
On an island where voter participation often hovers around 80 percent, just 23 percent of registered voters cast ballots. Voting stations accustomed to long lines were virtually empty on Sunday.


Thats a significantly difference in turnout. I can't find many details on the boycott though the wikipedia article seems to state some valid reasons, if they are true.
The referendum was boycotted by all the major parties against statehood for several reasons. One reason is that the title of the ballot asserted that Puerto Rico is a colony. The Popular Democratic Party (PPD) has historically rejected that notion. Similarly, under the option for maintaining the status quo, the ballot also asserted that Puerto Rico is subject to the plenary powers of the United States Congress, a notion also historically rejected by the PPD. Likewise, under the 'independence/free association' option, the ballot asserted that Puerto Rico must be a sovereign nation in order to enter into a compact of free association with the United States.[c] Supporters of the free association movement reject this notion. Had these parties participated in the referendum, they claim it would mean they had accepted those assertions implicitly, regardless of whether the assertions were correct or not.

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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby Zohar » Tue Jun 13, 2017 12:35 pm UTC

Also while 97% of voters were for the idea, the total number of people who voted for statehood was actually lower than a previous referendum. 834,191 voted for statehood in 2012, as opposed to only 502,616.
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Re: Puerto Rico Debt Crisis: $70+ Billion in Debt and counting

Postby Yakk » Thu Jun 15, 2017 4:05 pm UTC

The argument for the boycott mattering is simple.

It was a non-binding referendum that at "best" would repeat the results of the last non-binding referendum. Which resulted in nothing.

A boycott saying "the referendum is a waste of money" is reasonable. There is a solid argument that the referendum is as valid as "call this number if you think yummy-os are better than crappy-os breakfast cereal". Except it cost a bunch of public money to run.

What more, but there is a strong history of having referendums like "do you want to do X (which the government wants), or Y (which is not the status quo, and is akin to shooting yourself in the head)".

See https://en.wikipedia.org/wiki/Puerto_Ri ... ndum,_2012
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