The Economist explains

Could Puerto Rico become America's 51st state?

Probably not any time soon

By D.R. | NEW YORK

WHILE Europe’s debt crisis seems to have stabilised, the vigilantes of the bond market have found a new target on the other side of the Atlantic. Puerto Rican paper has sold off sharply in recent months as investors have lost confidence in the cash-strapped island’s ability to meet its obligations, and its government is perilously close to losing market access entirely. Many of the roots of Puerto Rico’s current woes lie in its peculiar status within the United States as an overseas territory. Its residents are American citizens who use the dollar and are subject to federal law. However, because it is not a state they do not pay federal income tax on their local earnings and cannot vote for president or Congress. Interest payments on its debt are also exempt from taxation by America's 50 states, making Puerto Rican bonds artificially attractive to rich investors in high-tax jurisdictions. That enabled the island to borrow more money at lower rates than its economic fundamentals could justify. The island’s dire financial condition—and resulting speculation as to whether a federal bailout may be forthcoming—has refocused attention on its status. Can Puerto Rico become the 51st state?

The United States won control of Puerto Rico in 1898 following the Spanish-American War. It granted citizenship to the island’s residents in 1917—which conveniently allowed 20,000 of them to be drafted into service in the first world war the following year. Although boricuas, as Puerto Ricans call themselves in homage to the indigenous name for the territory, set up their own government in 1952, their legal relationship with the federal government remained the same. Since then, they have held four non-binding referendums regarding their status. In 1967 and 1993 they voted to remain a commonwealth, and in 1998 a majority chose “none of the above”, owing to disagreements over the technical definitions of the various options. Only in 2012 did statehood advocates finally come out on top: in a ballot with two separate questions, a majority voted both in favour of changing the island’s status and for becoming a state if a change did occur. Critics argued that the referendum’s design was rigged to produce a pro-statehood outcome, since even people who voted against a change in status were still asked to select a preferred arrangement other than the current one.

Regardless of the referendum, Puerto Rico is unlikely to become a state any time soon. Because the island remains a territory, the decision is ultimately out of boricuas’ hands. Only the federal Congress, to which the island appoints a non-voting “resident commissioner”, can grant statehood, which it has not done since it admitted Hawaii in 1959. Until the most recent referendum, Puerto Ricans had never voted in favour of statehood, so Congress had no reason to act. That obstacle has now been removed, but coming on the heels of a government shutdown and a brush with debt default, the legislature is highly unlikely to prioritise a Puerto Rican statehood bill.

Even if Congress were to break out of its current gridlock, the Republican Party would surely use every tactic at its disposal to block a statehood bill. Exit polls showed that last year Barack Obama won 83% of the presidential vote among Puerto Ricans living on the mainland. Adding two Democratic-leaning senators, five representatives and seven presidential electoral votes would be a political nightmare for the GOP. Now that statehood advocates have won a referendum at home, they will need to focus their efforts on supporting Democratic legislative candidates in 2014 to have any hope of success.

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