Puerto Rico’s Double Whammy: Irma and Hedge Funds

The fiscal constraints the island’s bondholders have inflicted will make hurricane recovery very difficult.

Irma, the largest Atlantic hurricane in recorded history, has proven cruelly fickle as it surges through the Caribbean. The Category Five storm “hit like a bomb” on the small islands of Barbuda and St. Martin, destroying up to 95 percent of the structures and rendering the areas “barely habitable.” But Irma stayed north of Puerto Rico, sparing the island from the worst.

That’s not to say that Puerto Rico didn’t sustain damage. Three people died, according to Governor Ricardo Rossello, and nearly one million households are without power. That’s about two-thirds of all electricity customers on the island, and the outages could linger for up to six months, according to a preliminary report released before the storm hit. Backup generators have only about 40 percent of the hospitals operating. Persistent rains—up to 12 inches in parts—could make flash flooding the biggest ongoing danger. And this is seen as a dodged bullet!

These are tragic outcomes for everyone in the Caribbean. But Puerto Rico has a special burden—its massive debt crisis, and the ravages that years of austerity measures are taking on its ability to engage in emergency response. The hedge funds whose greed has rendered the government incapable of responding bear some responsibility for this outcome, yet they won’t be the ones coming to Puerto Rico’s rescue...