Don't Divest from the Debt

Last week, hundreds of protesters marched across Harvard’s campus to demand that the University divest from the Baupost Group, a hedge fund with holdings of Puerto Rico’s debt. We appreciate the protesters' sympathy for Puerto Rico’s plight: After two Category 5 hurricanes struck the island in September, many Puerto Ricans lost water and electricity, and some Harvard students were left unable to contact their families. Since then, the island's recovery has been exceedingly slow.

Nevertheless, though we respect the protesters’ right to protest, we are not supportive of their demands for divestment. We remain convinced, as we have reiterated many times in the past, that the strategy of divestment is not the answer.

Many of our editorials concerning divestment have been written in response to Divest Harvard's efforts to urge the University to divest its endowment from companies involved in coal and fossil fuels. At that time, proponents of divestment aimed to combat anthropogenic climate change, an issue on which science is unequivocal.

Now, we consider debt. The economics that undergird arguments about divestment from Baupost are undoubtedly more nuanced, and it is questionable how the protesters' demands for Harvard to “divest from hate” by divesting from the Baupost Group will help Puerto Rico. Indeed, before the hurricanes, these loans could very well have helped the island by providing the capital that enabled the government to function.

It is also important to recognize that, though the protesters refer to those at Baupost as “vultures,” a spokesperson for the group said that it has not purchased more bonds since the hurricane.

Were Harvard to convince Baupost to sell its holdings of Puerto Rican debt, other investors—presumably understanding that Harvard’s decision was motivated by political, and not financial, reasons—would likely buy the debt. This is one of the most troubling flaws of divestment, and a concern with the strategy that we have expressed previously. Any potential sale would have no effect on the amount owed by Puerto Rico to its creditors.

If the Baupost Group and other creditors were to instead forgive Puerto Rico’s debt, as President Donald Trump suggested, the effects would be uncertain, as economists remain divided on the issue. Some argue the short-term relief is needed, while others are concerned with long-term problems on the island and the fact that many owners of the debt are American pension funds and individual Puerto Ricans.

Nevertheless, we recognize that, in the future, Puerto Rico—and other developing economies—will surely need new credit to finance further expansion. It is probable that Harvard, given the size of its endowment, has investments in funds that hope to lend money to finance such expansions. These loans could provide much-needed capital to facilitate the growth of developing economies. Thus, we hope Harvard does not take these protests as a sign it should cease investments that loan to developing economies for fear that seeking repayment will trigger protests.

Instead of divestment, there are steps the University can and should take to provide tangible support for the island. We encourage Harvard to consider following the lead of schools like the University of Chicago and University of California, Davis, which have invited students from Puerto Rican universities to apply to enroll for a limited period of time. Harvard should also consider intensifying efforts to encourage Puerto Rican students to apply to the University and direct research in a manner that would assist the island in its recovery. Furthermore, the University must ensure that its own Puerto Rican students are cared for.

Puerto Ricans are our fellow citizens, and they deserve our full support in their recovery. Such support, however, should take the form of real, tangible action. Protesting Harvard for its endowment’s investments in a hedge fund that owns Puerto Rican debt is, at best, unlikely to help. At worst, it harms the long-term future of the island.

This staff editorial solely represents the majority view of The Crimson Editorial Board. It is the product of discussions at regular Editorial Board meetings. In order to ensure the impartiality of our journalism, Crimson editors who choose to opine and vote at these meetings are not involved in the reporting of articles on similar topics.