The government of Puerto Rico and the Federal Council of Fiscal Supervision which manages the finances of the American territory have agreed on a debt restructuring plan that could put an end to the largest bankruptcy proceeding in U.S. history, which started in 2017.
Puerto Rico Governor Pedro Pierluisi told NBC News on Thursday that the Federal Supervisory Board had agreed to modify their previous version of the plan to eliminate pension cuts and provide more funding to the island’s public university system, following long-standing disagreements on the two issues.
The changes would align with a new law signed by Pierluisi on Wednesday pledging $ 500 million per year to the University of Puerto Rico until fiscal 2027 and “zero reduction of pensions of current retirees and current accrued benefits of active public employees. “
While the Federal Supervisory Board agreed Thursday to cancel its proposal to reduce pensions by 8.5% of pensions above $ 1,500, the law remains “very open and ambiguous as to what happens to the pensions of future retirees, people who still work and contribute to some public benefit and contribution plans, “Sergio Marxuach, policy director of the Puerto Rico-based non-partisan think tank Center for a New Economy, told NBC News.
The debt restructuring deal is now up to U.S. District Court Judge Laura Taylor Swain, who is handling the bankruptcy proceedings, after a series of court hearings, which began on November 8.
If upheld, the deal would effectively reduce Puerto Rico‘s annual public debt payments to $ 1.1 billion, from $ 3.3 billion. At the same time, the island’s debt service would be reduced to 7.5%, from 25%.
Puerto Rico‘s $ 70 billion public debt could drop to $ 34 billion, while Public Buildings Authority debt and general bonds could be cut to $ 7.4 billion from $ 18.8 billion .
âThis will mean huge savings for Puerto Rico,â Pierluisi said. “We will pay one-third of the debt service we paid before this bankruptcy process began.”
“I am convinced that this is an affordable adjustment plan, and I hope we will have this bankruptcy behind us in the very near future,” he said.
But Marxuach said that also means Puerto Rico would have “essentially committed a third of our budget, using this year’s budget as a benchmark, and we haven’t even talked about paying public schools, police and whatever. function to keep the government of Puerto Rico running. “
“As we have less money available, the more difficult it will be to honor all the commitments,” he said.
The latest debt restructuring deal comes after nearly five years of repayment negotiations with the bondholders who hold Puerto Rico’s debt. This debt has accumulated after decades of excessive borrowing, mismanagement and corruption.
The federal tax commission was created under the Obama administration under the Promesa Act of 2016 after US laws arbitrarily excluded US territory from the Federal Bankruptcy Code. The board oversaw the renegotiations, a process that resulted in harsh austerity measures as Puerto Rico tried to revive its economic growth. It also generated nearly $ 1 billion in revenue for the lawyers involved.
âThe cost of bankruptcy was paid with public funds owned by the government of Puerto Rico, paid for by the taxpayers of Puerto Rico,â Pierluisi said. “All the federal government has done in this area is provide Puerto Rico with a mechanism for debt restructuring.”
Future debt repayments will also flow to the island’s Puerto Rican residents, a financial commitment that could last for at least three decades, Marxuach said.
If Swain rejects the debt restructuring agreement, the Federal Council of Fiscal Supervision and bondholders will have to pursue more negotiations, a process that could take weeks or even months.