By DÁNICA COTO, Associated Press
SAN JUAN, Puerto Rico (AP) — Puerto Rico’s nearly five-year bankruptcy battle was resolved Tuesday after a federal judge signed a plan that slashes the U.S. territory’s public debt load as part of a restructuring and allows the government to start repaying creditors.
The plan marks the largest municipal debt restructuring in U.S. history and was approved after the judge held heated hearings in recent months and as the island struggles to recover from deadly hurricanes, earthquakes, and a pandemic that deepened its economic crisis.
“Congratulations, Puerto Rico!” tweeted Natalie Jaresko, executive director of a federal control board appointed to oversee Puerto Rico’s finances that had been working with the judge on the plan. “Financial stability. A new chapter to lead to renewed economic prosperity!”
The board said that the plan signed by federal judge Laura Taylor-Swain cuts Puerto Rico’s public debt by 80 percent and saves the government more than $50 billion in debt service payments. Jaresko noted that the plan reduces claims against the government from $33 billion to just over $7.4 billion. It also avoids proposed pension cuts that had led to heated debates and long created a rift between the board and Puerto Rico’s legislature and the island’s governor, which vehemently opposed them.
The plan that restructures the central government’s debt notes that Puerto Rico has sufficient resources to pay the debt through 2034, but critics have said the government does not have the finances required to meet debt service payments and warned of more austerity measures.
Still pending is the debt restructuring of some government agencies, including that of the Puerto Rico Electric Power Authority, which holds the biggest debt.
“This one is very important for the economy of Puerto Rico because if it means a rise in energy costs, it makes us less competitive,” said José Caraballo, a Puerto Rico economist and professor.
Gov. Pedro Pierluisi said that while the plan approved Tuesday is not perfect, it represents a big step for the island’s economic recovery.
“We still have a lot of work ahead of us,” he said.
José Luis Dalmau, president of Puerto Rico’s Senate and a member of the main opposition party, also praised the plan and called it a transcendental step for the island’s economic recovery.
“From this moment on, a new page of fiscal responsibility, good governance and unity begins, which will lead to a more prosperous economy, a climate of job creation and greater fiscal stability,” he said
Puerto Rico’s government declared in 2015 that it could not afford to pay its more than $70 billion public debt load accumulated through decades of mismanagement, corruption, and excessive borrowing.* It then filed for the largest municipal bankruptcy in U.S. history in 2017, a year after U.S. congress created the financial oversight and management board for Puerto Rico.
Caraballo, the economist, said the island likely would be able to access the market in three to five years to issue bonds for capital projects but warned it should avoid repeating past mistakes.
“Borrowing is playing with fire,” he said. “You need to have people who know what they’re doing. Otherwise, one can return to this disaster we call a debt crisis.”