Sunday, Puerto Ricans headed to the polls to cast their votes for statehood.

97% voted to make Puerto Rico the fifty-first state. But that overwhelming support is hindered by the fact that only 23% of the eligible population actually voted.

According to many reports, the desire for statehood may hinge more on the small territories out of control debt than any patriotic compulsion.

From NBC:

The island’s governor, Ricardo Rosselló from the New Progressive Party (PNP in Spanish), along with his government, had been pushing for a “yes” for statehood as the best way to grapple with Puerto Rico’s crippling $73 billion debt.

But the island’s other two main political parties had pushed for a boycott of the plebiscite, and it showed in the turnout numbers. About 1.3 percent voted for the current commonwealth status and about 1.5 percent voted for independence.

The president of the Popular Democratic Party, (PPD in Spanish), which favors the current commonwealth status, said after the vote that “statehood-ers shot themselves in the foot.”

“Eight out of 10 voters went to the beach, went to the river, went to go eat, went to go hang out, went to church, but they sure didn’t go out to vote,” said PPD president Héctor Ferrer at a San Juan press conference. “Gov. Rosselló is now going to go to Washington and say this (statehood) is what people wanted. But we’re going too to say no, that’s not true and the numbers speak for themselves.”

Puerto Rico recently, “declared a form of bankruptcy” reports the New York Times:

But this time, the vote came a few weeks after Puerto Rico declared a form of bankruptcy in the face of $74 billion in debt and $49 billion in pension obligations it cannot pay. More than 150 public schools are being closed as a mass exodus of Puerto Ricans head for the mainland and those who remain brace for huge cuts to public services. Decisions are now in the hands of a bankruptcy judge.

Voters said that Puerto Rico needed the United States now more than ever.

“If there’s an earthquake in Puerto Rico, who is going to send the help? The Americans! This is their land!” said Gladys Martínez Cruz, 73, a retired tax clerk in San Juan’s Barrio Obrero neighborhood. “We need someone who is going to support us, send us money. There’s a lot of hunger in Puerto Rico, even with the help we get.”

Many Puerto Ricans, like Ms. Martínez, live off food stamps, public housing vouchers or other federal programs and worry that a change in political status could affect that aid. A huge publicity campaign warned voters that their citizenship could be at risk.

Bankruptcy and debt write-off would have reaching implications beyond Puerto Rico. Some 40% of state-side municipal bonds “have exposure to Puerto Rico debt” reports Forbes:

10-years of economic stagnation has taken its toll on Puerto Rico. Unemployment is skyrocketing, infrastructure is degrading, and the exodus away from the island is accelerating. Structural reforms that will stabilize the financial crisis in the short-term, and revitalize the economy in the long-term, are necessary. Such reforms will benefit the rest of the country as well.

Perhaps most obviously, these reforms will benefit the rest of the country because many Americans have directly invested in the bonds that Puerto Rico is currently unable to repay, or their pensions have invested in these bonds on their behalf. According to an analysis by USA Today based on Morningstar data, 40 percent of “municipal bond funds still have exposure to Puerto Rico debt”.

Therefore, any defaults or write downs on Puerto Rico’s $74 billion in outstanding debt will be a zero-sum game. Puerto Rico will gain debt relief, but savers and retirees in the rest of the country will be poorer.

It is imperative to keep this perspective during Puerto Rico’s debt renegotiations to ensure that Puerto Rico’s need for immediate debt relief is appropriately balanced with the need to minimize the losses on the territory’s current debt holders.

While debt renegotiations are necessary in the short-term, only economic growth can permanently fix Puerto Rico’s fiscal crisis. Economic growth does not simply occur because politicians wish it to be so. Instead, politicians must implement the right policies that empowers individuals, small businesses, and large companies (e.g. the private sector) to invest and grow the economy.

Puerto Rico’s economic malaise is attributable, in part, to poor economic policies implemented by both Puerto Rico and the federal government. These policies increase the costs of doing business, and create obstacles to working, saving, and investing in the territory.

Only 500,000 some-odd Puerto Ricans participated in Sunday’s referendum vote, which is incredibly low compared to previous elections (from NBC):

Puerto Rico historically has had high turnout in most elections. In the last plebiscite held in 2012, more than 1.9 million people voted, and 800,000 chose statehood. In 1993, nearly 2 million Puerto Ricans voted.

The vote was non-binding and it’s up to Congress to accept or reject the referendum results.

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