Critics say Puerto Rico’s bankruptcy deal will put funds for public services at risk: NPR

Puerto Rico declared bankruptcy four years ago. Officials and creditors have reached an agreement, and a federal bankruptcy judge is considering approving it.



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Puerto Rico officials have reached an agreement with the island’s creditors on restructuring the huge debt load that drove it into bankruptcy four years ago. The American territory bends under the massive weight of more than 70 billion dollars that it owes. Now a federal bankruptcy judge is considering whether or not to approve the deal.

NPR’s Adrian Florido reports.

ADRIAN FLORIDO, BYLINE: In Puerto Rico, the No. 1 question about this deal is whether the government will have enough money to provide vital public services in a Commonwealth where nearly half the island lives below the poverty line.

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FLORIDO: Margarita Jimenez is convinced not. She was walking past the San Juan Federal Courthouse last week, carrying a sign.

MARGARITA JIMENEZ: (speaking Spanish).

FLORIDO: His sign said they were stealing our homeland.

JIMENEZ: (speaking Spanish).

FLORIDO: “There are a lot of people leaving Puerto Rico,” she said, “because the government is making life here so difficult.” After Puerto Rico began defaulting on $72 billion in debt in 2016, Congress appointed a federal oversight board to manage the territory’s budget and negotiate with its creditors. This council has already reached agreements on smaller pieces of this debt. This new deal is for the biggest chunk – $33 billion – with creditors agreeing to accept billions less than they are owed.

Governor Pedro Pierluisi said it was a good deal and the only way for Puerto Rico to emerge from bankruptcy and rebuild its tattered economy.

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PEDRO PIERLUISI: (through interpreter) If I had any doubts that this debt restructuring plan is a good deal for Puerto Rico, I wouldn’t support it. The important thing in the years to come is that our government be fiscally responsible and not repeat the mistakes of the past, so that we do not find ourselves in this painful situation again.

FLORIDO: But the pain may be about to get worse. Budget cuts have reduced essential services in recent years – from public safety to health care to education. Many Puerto Ricans fear these cuts will get worse because this new deal, they say, does not forgive enough debt.

EVA PRADOS: The question we asked Puerto Rico is how much can we really pay. That’s the real big question here.

FLORIDO: Eva Prados leads a group that has spent years calling for a full public audit of Puerto Rico’s debt. This debt deal, she insists, will burden the island with huge payments for the next three decades. In total, Puerto Rico could pay more than 30 cents of every dollar of its general budget on debt and unfunded pension obligations – a huge sum, and far more than the most indebted US state.

PRADOS: If we cannot afford this new adjustment plan, we will have more austerity measures in Puerto Rico. We will see more public funds cut – in education, in health, in public universities.

FLORIDO: Officials in Puerto Rico recognize that maintaining debt payments will require continued budget cuts.

Daniel Santamaria Ots is an economist at Espacios Abiertos, a pro-transparency group in San Juan. He thinks the supervisory board could have negotiated more aggressively with the banks and hedge funds that hold most of Puerto Rico’s bonds. They bought these bonds for a fraction of their full value after Puerto Rico defaulted and after Hurricane Maria.

DANIEL SANTAMARIA OTS: And they’re going to have returns on investment right now of three, four, five times what they invested. And these returns are at the expense of the people of Puerto Rico.

FLORIDO: Like most observers, Santamaria Ots says it’s likely Judge Laura Taylor Swain will approve the debt settlement now before her. But he hopes she will carefully consider whether that does enough to protect essential services that Puerto Ricans rely on.

Adrian Florido, NPR News, San Juan, Puerto Rico.

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