The plan marks the largest municipal debt restructuring in U.S. history and was approved following grueling negotiation efforts, heated hearings and multiple delays as the island struggles to recover. deadly hurricanes, earthquakes and a pandemic that has deepened its economic crisis.
“There has never been a public restructuring like this anywhere in America or the world,” said David Skeel, chairman of a federal board of control appointed to oversee Puerto Rico’s finances who worked with the judge on the plan.
He noted that no bankruptcy mechanism exists for countries or US states like the one granted to Puerto Rico.
“This was a surprisingly complex, large, and significant bankruptcy,” Skeel said, noting that the island had three times as much debt as Detroit.
Puerto Rico’s government said in 2015 that it could not afford to pay its more than $70 billion public debt that it had racked up over decades of mismanagement, corruption and excessive borrowing. He also had more than $50 billion in public pension liabilities. In 2017, it filed the largest municipal bankruptcy in U.S. history, a year after the U.S. Congress created Puerto Rico’s Board of Supervisory and Financial Management.
The plan that restructures the central government’s debt comes into effect on March 15 and could be appealed, although Skeel expected the judge to say so.
The board says the plan signed by federal judge Laura Taylor Swain cuts Puerto Rico’s public debt by 80% and saves the island more than $50 billion in debt service payments , some creditors having accepted significant reductions. Board members noted that the plan reduced claims against the government from $33 billion to just over $7.4 billion, with 7 cents of every taxpayer dollar going to debt service, compared to 25 cents previously.
“This period of financial crisis is coming to an end,” said Natalie Jaresko, the council’s executive director. “We have accomplished what many thought was impossible.”
The plan also avoids proposed pension cuts that had led to heated debates and driven a wedge between Puerto Rico’s board and legislature and the island’s governor, who vehemently opposed it.
The plan notes that Puerto Rico has sufficient resources to pay the debt through 2034, but critics said the government lacked the finances to meet debt service payments and warned against new austerity measures.
Jaresko brushed off those concerns, saying that while budgets were being cut, there had been no layoffs or closed agencies.
“It wasn’t austerity,” she said. “People look at the last five years and think it’s going to go on like this forever, but it’s not.”
The restructuring of the debt of some government agencies, including that of the Puerto Rico Highways and Transportation Authority and the Puerto Rico Electric Power Authority, which holds the largest debt, is still pending. .
“This one is very important for Puerto Rico’s economy because if it means higher energy costs, it makes us less competitive,” said José Caraballo, an economist and professor from Puerto Rico.
He added that the island would likely be able to access the market in three to five years to issue bonds for investment projects, but warned it should avoid repeating past mistakes.
“Borrowing is playing with fire,” he said. “You have to have people who know what they’re doing. Otherwise, we can return to this disaster called a debt crisis.
Governor Pedro Pierluisi said that while the plan approved on 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 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, 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. he declared.
Jaresko noted that the plan has safeguards to prevent a repeat of the island’s debt crisis, including allowing long-term borrowing only for capital improvement projects. The council, known as “the junta” in Puerto Rico and reviled by many, expects to be around for at least three more years, or until Puerto Rico has four consecutive balanced budgets, said Skeleton.
“We won’t stay a day longer than our term,” Jaresko said. “Our goal is to complete what Congress has asked us to do.”