Puerto Rico’s Bankruptcy Approved After Struggle With Massive Debt
WASHINGTON — Puerto Rico’s five-year struggle to free itself from crushing debt ended Tuesday when a federal judge signed off on the U.S. territory’s bankruptcy plan.
The restructuring cuts Puerto Rico’s public debt from $33 billion to just over $7.4 billion. The total debt from all obligations had reached $70 billion.
Local citizens were paying 25 cents of every taxpayer dollar on debt service. The bankruptcy plan cuts the debt service to 7 cents per dollar.
The Puerto Rican government sought bankruptcy in 2017 after being overwhelmed by years of mismanagement, corruption and expenses from natural disasters.
Its debt restructuring was the largest municipal bankruptcy in U.S. history. It also generated more political support for the Puerto Rican Financial Oversight and Management Board Congress created a year earlier to avoid future budget debacles.
“Restructuring the debt, however, is only one step towards Puerto Rico’s recovery,” the Board said in a statement. “Puerto Rico needs to achieve fiscal responsibility to ensure long-term stability and growth. Puerto Rico must never fall back into old practices of overspending, and of underfunding its commitments to retirees, government services and the public infrastructure.”
Attorneys for the oversight board told U.S. Bankruptcy Judge Laura Taylor Swain that Puerto Rico must cut its debt to attract new investment.
During the years of sometimes heated negotiations, Puerto Rican leaders expressed concern bankruptcy would force them into an austerity plan that failed to adequately serve its people.
After the judge’s approval this week, Puerto Rican Governor Pedro Pierluisi said the plan would make the island’s debt sustainable.
“The agreement, although not perfect, is very good for Puerto Rico and protects our pensioners, the university and our municipalities, which serve our people,” he said in a Twitter message.
One of the last remaining issues before the agreement focused on how the local government handled eminent domain claims. The judge wanted assurances residents still would have rights to compensation when the Puerto Rican government seized their property for various projects.
She said after the government reached its agreement with the oversight board that the restructuring would ensure Puerto Rico can “provide future public services and remain a viable public entity.”
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