The supposed justification was to give the island some way to get through bankruptcy. In reality it has set the island up for a decade of mass unemployment and crisis — without remotely fixing the debt problem. It's no accident the locals call the board "La Junta."
And now Puerto Rico has suffered serious damage from Hurricane Irma, adding yet another problem to the pile. Without serious federal help, this crisis will continue indefinitely.
Puerto Rico got into debt trouble through a combination of odd tax loopholes, irresponsible governance, and even more irresponsible lending. The details are complicated, but the most important thing to remember is that every bad loan has two parents, borrower and lender. If it was irresponsible to take money, it was even more irresponsible to give it to an entity that was clearly in over its head. Other Wall Street goons in the form of "vulture funds" have been downright predatory, buying up abandoned debt on the secondary market for a small fraction of its face value, then filing a blizzard of lawsuits to get the government to force Puerto Rico to pay up in full, by cannibalizing its public infrastructure.
The other thing that must be remembered is that the austerity always demanded by creditors during a debt crisis is straightforwardly self-defeating. As many countries have demonstrated since the 2008 financial crisis, austerity during a depression makes a debt problem worse, by strangling the economy and reducing tax revenue. It's like trying to undertake heavy manual labor while on a starvation diet — you just make yourself weak and sick.
What Puerto Rico needs right now is a big check from the federal government to get its economy re-pressurized, coupled to a debt restructuring and partial write-down to get it on a realistic repayment schedule. This would ideally be coupled to a thorough economic overhaul, and finally U.S. statehood. "Structural reform" has become a dirty word due to it usually being code for austerity and neoliberal assault on workers, but Puerto Rico's economy really does need work. Its labor force participation rate and productivity are low, its unemployment and poverty rate is high. Those problems will not be solved with budget cuts, but they are real problems.
What's more, Puerto Rico's infrastructure — long neglected due to the years of fiscal crisis — is in sorry shape, as was shown during Hurricane Irma. It took a fairly bad battering from the storm, which knocked down buildings and left hundreds of thousands without power ever before the highest winds arrived. The island's oil-fired power plants are outdated and fragile, and it has little solar power despite being a prime location (though one large plant was opened earlier this year). A big infrastructure update would be a splendid candidate for a federal stimulus plan to restore employment, stop the hemorrhaging of residents to the mainland, and increase productivity over the long term.
But as economist Martin Guzman explains, the PROMESA plan — its board, by the way, still has a fervent right-wing Social Security cutter — goes the opposite direction:
Unfortunately the [Fiscal Control] Board approved a fiscal plan for the next decade, 2017–2026, that is not aligned with what Puerto Rico needs to recover. Even the creators of the plan project another lost decade for the country, and they're being overly optimistic since their projections are based on assumptions that are not sound. They're underestimating the consequences that the plan will have for the Puerto Rican economy and society. As long as the board doesn't settle on a sound macroeconomic plan with a sound debt restructuring proposal, PROMESA will not be fulfilling the role for which it was created. [Institute for New Economic Thinking]
Despite the wreckage left by Irma and its sorry economic condition, many Puerto Ricans generously took in refugees from neighboring islands that suffered a direct hit. That, I suggest, is the attitude with which the American mainland should approach its Caribbean colony, still home to 3.4 million American citizens. They're in trouble and need help — and help could be easily provided.