Hurricane Maria turned off the lights of Puerto Rico, but they were already flickering because of the massive corruption in the state-run energy sector.
If you are not Puerto Rican, you may not have paid too much attention to the great economic catastrophe that had overtaken Puerto Rico before the onslaught of Hurricane Maria. Possibly, you might have seen a ripple of this catastrophe in the stories of a vast number of Puerto Ricans leaving the island for New York City and other places.
In a declining economy, a corrupt Puerto Rican government had squandered its monies by cronyism, bad deals sweetened by payoffs, and a multi-billion dollar public debt that is impossible to pay back. Schools, hospitals, welfare agencies, public power authorities, and the like were closing or close to closure.
In a 2015-2016 investigation, the F.B.I found that there was widespread corruption in the Puerto Rican government, particularly in the state-run energy sector. It seemed that the further that the FBI dug into the corruption, the more that came out. In one particularly galling incident, the FBI couldn’t telephone members of the Puerto Rican House of Representatives because the phones had gone down after a contract to rewire the phones was given to someone who had never worked on telephones before. This practice of giving contracts to the unqualified but the connected was widespread.
The churches and other religious groups couldn’t ignore the problem of corruption because it so profoundly affects their congregants’ well-being. The catastrophe called for a recovery of the anticorruption theology of the religious traditions.
Archbishop Roberto González from the Catholic Archdiocese of San Juan de Puerto Rico and Reverend Heriberto Martínez, the head of the Puerto Rico Bible Society entered into the fray around the question of who will get any money out of the situation: the bankers; the corrupt politicians; or the people. They pressured the United States Congress to allow Puerto Rico to enter into a bankruptcy-like process, so that bad actors couldn’t treat Puerto Rico like a feast for jackals. Consequently in the summer of 2016, Congress passed PROMESA (the Puerto Rico Oversight, Management, and Economic Stability Act) that established a bankruptcy-like process for Puerto Rico (and other U.S. territories if they need it). There was a yearlong delay in establishing a plan for debt relief.
Finally, the religious leaders added their plaintiff voices, “If the oversight board and Governor do not act by April 28th [to enter into a bankruptcy-like process that tries to protect all parties in a crisis debt situation], we fear that Puerto Rico could be held hostage by predatory actors and ‘vulture’ funds.” The result was a bankruptcy-like declaration on May 3rd of $73 billion in debt and $49 billion in unfunded pension obligations that makes Detroit’s bankruptcy for an indebtedness of $18-20 billion look small.
Puerto Ricans clearly saw the need to clean up internal corruption. A survey of the general public that was published on May 22, 2017 showed that Puerto Ricans trust most the FBI and trust Puerto Rican leaders the least. 95% said that Puerto Rico was governed by a few groups that seek their own benefit. Unfortunately, Democratic Party leaders strongly resisted any purging of the corrupt leaders from the government, let alone pushing any demands for “clawbacks” of the ill-gotten gains. By invoking the suffering of the poor as a reason to favor more money for the government, the office-holders were holding the poor hostage to their greed, according to some critics.
On May 17th, the Catholic and Protestant Bible Society leaders wrote in a letter to the Federal judge appointed by U.S. Supreme Court Chief Justice John Roberts to oversee the bankruptcy process, “You are in our prayers as you take on this important task to help restructure our debt, prevent austerity and protect our people.”
The current governor of Puerto Rico, Ricardo “Ricky” Rosselló, spent a great deal of time during his 2016 campaign deflecting criticisms of the flourishing of corruption when his father was governor. Rosselló said that he could fix the crisis if Puerto Rico becomes a state and receives an influx of cash from government programs and other benefits. He promised that he would address corruption if it comes up in his administration.
After the hurricane, the financial recovery got much more complicated and will bog down unless the predators on the Puerto Rican people are shooed away.
The two hurricanes: Maria and Corruption
The slow rebuilding after Hurricane Maria has sent a wave of suspicion that corruption is at work. There is a fear in Puerto Rico about another catastrophe in the form of a massive wave of corrupt operators trying to steal from the billions of dollars of recovery funds.
After the distribution of recovery funds for Hurricane Katrina and the 2009 economic stimulus package, the amount of corruption was huge. The Justice department filed charges in 1,300 cases just in regard to the Katrina recovery alone. Consequently, Justice organized the National Center for Disaster Fraud which operates in Baton Rouge, Louisiana. The United States Attorney in charge, Corey Admundson, recently warned against the potential for fraud in the handling of monies designated for Puerto Rico.
Suspicions are falling upon three groups: government officials; hurricane recovery contractors; and the bankers. There is continuing suspicion about the Puerto Rican government. The latest controversy is a suspicious deal with a contractor for the recovery of the power grid.
The state power authority, called PREPA, granted a sweetheart deal to Whitefish Energy to rebuild the power grid. A public uproar has pointed out that that the Montana company had a raft of Trump administration connections. The CEO flew into Puerto Rico and gained a contract for $300 million dollars. In the contract, there is even a provision that the company’s expenditures cannot be questioned.
PREPA claims that the noveau rich Whitefish was the only practical way to start repairs, because the authority’s creditworthiness was so low that other American energy companies didn’t want to do any work without a large payment upfront. The Puerto Rican energy authority is deeply in debt because of bad decisions and massive corruption.
On Friday, October 27, FEMA declared that it had “significant concerns” about how Whitefish won its contract and the exorbitant prices that the company was charging. Whitefish had two employees when it won the contract and had never worked on a disaster recovery, a situation reminiscent of the comedic tangle of the rewired phones at the Puerto Rican House of Representatives. The contract rates for its electrical workers ranged from $188.07 to $440.00 per hour. This new imbroglio didn’t just threaten some high officials’ phones but hospitals, food distribution, and all of the Puerto Rican people. The governor had to respond quickly to the troubling Whitefish Energy uproar or risk having his reputation go down the drain.
Then on the last Sunday of October, Governor Ricardo Rossello, who appoints the members of PREPA’s board, asked that the energy authority to immediately cancel the contract with the Montana energy company. The repair process for three quarters of the defunct power grid will almost have to start over.
Within the last week, congressional investigators have discovered that another questionable contract was let in October to an Oklahoma oil field company, Mammoth Energy Services’ Cobra Acquisitions. With oil field contracting down, Mammoth seized upon an opportunity for new revenues by founding Cobra to do electrical rebuilding work after Hurricanes Harvey and Irma. Mammoth/Cobra’s contract is much cagier in its language.
Its contract with PREPA is full of language about avoiding payments that could be seen as corruption. However, its claim that FEMA approved every step of the contracting process has raised the suspicions of the House Energy Committee, because FEMA disavowed such claims in the Whitefish Energy contract.
Further, there is a specific opaqueness about the charges per electrical worker. The Whitefish Energy contract raised a howl of protest because of its very specific itemization of super high daily rates for its employees. Mammoth/Cobra lumps together the employee rates with other charges in the contract, so one can’t tell what are the hourly rates per worker. However, the company does indicate that it will charge $281/day to house and feed each of its workers on a barge off the Puerto Rico coast.
In the midst of all this controversy the U.S. court appointed board for overseeing Puerto Rico’s bankruptcy announced that Noel Zamot, a retired Air Force colonel who was born and raised in Puerto Rico, will lead the transformation of the electricity sector. This has alarmed another group gathered at the pot of Puerto Rican monies, the financial companies who worry that their claim on the monies to be wrung from power system are slipping away.
This brings us to the third object of suspicion, the group of financial companies that had rushed to buy up a quarter of Puerto Rican debt (said to be about $72 billion) in order to scavenge a high profit off the bankrupt corpse. Now, they are maneuvering to get their profits.
Naturally, the hedge funders are self-righteously wrapping around themselves the righteousness of being the victims of massive Puerto Rican scams and the unprecedented ferocity of the hurricane. The problem with this rouging up of the bankers as innocent victims is that they only leaped into the Puerto Rican economy as a speculative investors in “distressed debt.” They didn’t act as investment bankers but as predatory financial groups popularly known as “vulture” funds, or more colloquially, the “Pirates of the Caribbean.” Should we rebuild the Puerto Rican power grid so that the hedge funders can make a massive financial killing by selling it off?
Some pro-union critics of the hedge fund deals claim that almost half of Puerto Rico’s indebtedness over time will be the result of the ruinous interest rates forced upon the commonwealth by Goldman Sachs and Citibank, who themselves receive $1.5 billion for setting up the loans. The bankers counter that the Puerto Rican government would have financially collapsed if they hadn’t been able to find money to pay its bills. They claim that nobody would loan money at regular interests rates because of the risk involved. This is somewhat similar to the state-run energy company’s argument that they could only use Whitefish Energy. The argument is a vicious circle somehow claiming to be a virtuous circle: Puerto Rico has to go further into economic disaster in order to avert economic disaster.
Unfortunately, giving these predatory rainmakers a haircut is not so easy. A lot of the Puerto Rican debt is also owned by local community banks, ordinary individual investors, and large mutual funds. With low interest rates, the income from Puerto Rican bonds that are triple tax free of local, state, and federal taxes with high interest rates seemed too good to pass up.
Underneath the jockeying for money, the real swirling turmoil was that one group of corrupt officeholders wanted protection from another group of corrupt bankers.
This is not, however, a time to slow down money for the rescue effort. You don’t shut down the emergency room for patients that are broke. You try harder to get them to recovery quicker, so that they can deal with their economic challenges. Many Puerto Rican and other American rescue workers are hard at work in the emergency room. We need to support them. We also need to help them to rehabilitate the Puerto Rican economy.
A new role for the religious groups
One way that the churches of Puerto Rico could help is to study and preach what the Bible has to say about corruption and its cure. Anti-corruption campaigners in other countries have found that it is crucially important to teach the cultural values to the public in order to build support for anti-corruption efforts. This has to be a long term project, not just a quick fix. For example, in Hong Kong, the teaching of the evils of corruption starts in the elementary schools. If Puerto Rican churches can do this, then maybe there is hope that the deep corruptions of United States politics and the banking system can be fixed too.
Most religions count corruption as an evil that defrauds the poor and undermines the law. Jewish synagogues in Puerto Rico, which very quickly distributed relief goods, cite such teachings found in Biblical passages like Exodus 23:8; and Proverbs 12:14. Muslims cite the Quran sura 2:188: “Do not abuse other people’s wealth using wrong means and do not bribe authorities in order to take possession of other people’s wealth knowingly and sinfully.” Or sura 5:62: Prophet, “you can see many of them outdoing one another in sin and hostility and making illegal profits.” A study by the Federal Reserve Bank of St Louis concluded that “’A belief in hell tends to mean less corruption and less corruption tends to mean a higher per capita income…Combining these two stories…suggests that, all else being equal, the more religious a country, the less corruption it will have and the higher its per capita income will be.’”
However, the pervasiveness of religion doesn’t necessarily undermine corruption. Christians and other religious organizations can be blind to the corruption of fellow believers.
Further, the religious values of hierarchy and the affirmation of kin and other social relations have sometimes accustomed believers to corruption found among the elites, family, and friends. A 19th Century judge in China lamented that his traditional values had an in-built contradiction between legal and family values. If he favored the law, then he alienated his family, but if favored his family, he destroyed the law. This conundrum is found in all societies with strong religious or humanistic values.
Still, we find that the origins of a vigorous anti-corruption mentality arose out of the development of Christian theology in Western Europe. Christian churches also found out that anti-corruption theologies and movements often led to country-wide spiritual revivals. This experience seems most relevant to Puerto Rico and the United States at this time.
Next: The spiritual roots of an anti-corruption culture
