SAN JUAN, Puerto Rico (AP) – A federal control board that oversees Puerto Rico’s finances filed a long-awaited plan in court on Friday that it says would reduce the United States (US) territory’s debt by more than 60 per cent and pull the island out of bankruptcy.
The plan comes three years after the US Congress created the board and would reduce USD35 billion in liabilities to USD12 billion, a move that some believe would help ease Puerto Rico’s financial crisis amid a 13-year recession, pave the way to the board’s departure and allow Puerto Rico to regain fiscal autonomy.
“Today we have taken a big step to put bankruptcy behind us,” said board chairman José Carrión.
“Three years after Congress passed PROMESA and two years after the most severe hurricane in more than 100 years hit Puerto Rico, after more than a decade of economic decline and fiscal disarray, after tens of thousands of Puerto Ricans left their island to find prosperity elsewhere, we have now reached a turning point.”
Puerto Rico was dragging more than USD70 billion in public debt after decades of mismanagement, corruption and excessive borrowing to balance budgets. In June 2015, the government declared the debt unpayable, and in May 2017, Puerto Rico filed for the biggest U.S. municipal bankruptcy in history.
Since then, deals totaling more than USD23 billion have been reached with creditors holding bonds issued by certain Puerto Rico government agencies. The newest plan targets general obligation bonds and other debt held by the government, and it still has to be approved by a federal judge overseeing a bankruptcy-like process as Puerto Rico still struggles to recover from Hurricane Maria.
The island’s infrastructure remains weak as evidenced by Puerto Rico’s Electric Power Authority announcement late on Thursday about selective power cuts given high demand and an overwhelmed power grid that has left tens of thousands without power overnight.
In addition, the fiscal crisis has crippled Puerto Rico’s ability to recover from the Category 4 storm that hit in September 2017 because it cannot borrow money since it doesn’t have access to capital markets, officials said.
Board members met on Friday to talk about the plan’s details, noting that while they expect creditors to fight back, the restructuring is needed.
Board’s Executive Director Natalie Jaresko said Puerto Rico’s bankruptcy is larger than that of General Motors in 2009 as she praised the aim to reduce the island’s debt by 60 per cent.
“Those are huge numbers,” she said. “It’s a very important day for Puerto Rico.”
However, Carrión acknowledged that the plan itself would not lift Puerto Rico’s economy or spur economic development.
“It’s not a panacea,” he said, adding, “Nothing can happen unless we get out of bankruptcy.”