A federal judge on Tuesday approved a deal that would allow Puerto Rico to leave bankruptcy after slashing their debt obligations, The New York Times reports.
Puerto Rico five years ago became the first US territory to declare bankruptcy amid a financial crisis that has worsened after Hurricanes Irma and Maria, multiple earthquakes, and the Covid pandemic.
A judge on Tuesday allowed the government to reduce the largest part of the country’s debt, $33 billion that it owes to bond holders, by about 80% to $7.4 billion.
Puerto Rico had $70 billion in bond debt and more than $50 billion in unfunded debt obligations to public workers when it entered bankruptcy.
“Today is truly a momentous day, and it is a new day for Puerto Rico,” Natalie Jaresko, who heads the oversight board that supervises the island’s finances, said Tuesday. “This period of financial crisis is coming to an end.”
“The agreement, while not perfect, is very good for Puerto Rico and protects our pensioners, university and municipalities that serve our people,” Gov. Pedro Pierluisi said in a statement. “We still have a lot of work ahead of us.”
Is it enough?
But the island could have trouble paying even the reduced debt. Activists worry that to pay the debt, which the government stopped doing entirely in 2015, will result in additional budget cuts and austerity measures.
“We’re talking more budget cuts, more compromising our services and potentially rate hikes like the ones we’ve seen for the last 10 years,” Center for Popular Democracy campaign manager Julio Lopez Varona told the Times. “We know it’s an unsustainable deal. Many, many economists have said Puerto Rico is not cutting enough debt. It’s a recipe for disaster.”
The oversight board, which backed the deal, disputed that the government would be unable to pay and predicted that the debt could be paid off by 2034.
“This is absolutely sustainable,” said David Skeel Jr., the board’s chairman. “It’s not going to lead to more cuts. I really think there’s a lot of misimpression out there.”
Exit for oversight board?
The oversight board, which is sometimes criticized as “la junta” by the island’s residents, was created in 2015 after the government said it could not pay its loans.
The board has been very unpopular and led to the resignation of former Gov. Ricardo Rossello.
Heriberto Martínez Otero, the executive director of the Ways and Means Committee of the Puerto Rico House of Representatives, said the bankruptcy deal “starts the countdown” to the exit of the oversight board.
“The restructuring plan will give Puerto Ricans a level of certainty of how much the island will have to pay annually and allow us to create effective economic policy,” he said.
The island must balance its budget for four consecutive years and meet other requirements to get rid of the board.
“So at the very least, the board will be around for at least three more years,” Skeel said. “It may be a bit longer than that.”