Puerto Rico Reaches Tentative Deal To Restructure Debt

Feb 11, 2020
Originally published on February 11, 2020 10:34 am
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STEVE INSKEEP, HOST:

Could a new arrangement with bondholders help to lift Puerto Rico out of bankruptcy? This deal would slash some of Puerto Rico's debt, but the island's many pensioners are not thrilled with the terms, and neither is the governor. Luis Valentin is going to help us explain this. He is with Puerto Rico's Center for Investigative Journalism and is on the line from San Juan. Good morning, sir.

LUIS VALENTIN ORTIZ: Hi. Good morning.

INSKEEP: This wipes away, I think, $24 billion worth of debt. What's not to like?

VALENTIN ORTIZ: (Laughter) Well, the deal certainly will bring on board an important group of bondholders and hedge funds who have been fighting Puerto Rico government in court as part of the bankruptcy process that began in 2017. And as you said, it would slash a good chunk of Puerto Rico's debt, as much as $24 billion. But there's a lot of concerns, questions and strong opposition from several groups, including the local elected government, the governor, pensioners and even other bondholder groups. So...

INSKEEP: When you say pensioners...

VALENTIN ORTIZ: Yeah.

INSKEEP: ...Who are we talking about? What are their pensions, and what happens to them?

VALENTIN ORTIZ: Well, basically, under the current framework that was - that is being proposed as part of Puerto Rico's bankruptcy process, pensioners are looking at 8.5% maximum cut to their benefits if they make more than $1,200 a month, so it's a good chunk of the pensioners population. And we have to remember that this is on top of a sluggish economy, of years of austerity measures, of two hurricanes that hit us back in 2017 and now the most recent earthquakes that hit the island beginning this year. So...

INSKEEP: So these are people who are on government pensions?

VALENTIN ORTIZ: Exactly.

INSKEEP: Former teachers, government workers, that sort of thing.

VALENTIN ORTIZ: Yeah. Yes.

INSKEEP: They're already in the pension system. They're already being paid now. They're on this fixed income, and they're supposed to take an 8.5% pay cut so that it's easier for Puerto Rico to pay the debt that remains. Is that the deal?

VALENTIN ORTIZ: Yes, that will be their concession as part of the - you know, the - how the - Puerto Rico's federally created fiscal board plans to solve and tackle Puerto Rico's debt problem.

INSKEEP: Well, this sounds like kind of classic austerity measures that a lot of countries have had to face, and now you have the commonwealth of Puerto Rico facing it. But that does raise the question, what's the alternative?

VALENTIN ORTIZ: Well, and it's true. There's a lot of people that ask, like, what could be done? The board has said - and we have to remember that the board that was imposed by Congress to overlook Puerto Rico's finances has exclusive authority to negotiate Puerto Rico's debt. So right now, their proposal is we need concessions from everybody, including pensioners, and that's the way we will move forward.

The thing is that from the other side, there's a lot of people that question the board's proposal because right now, there are a lot of bondholder groups who are getting a very good deal by signing off on this deal, and there are other groups that are being hit the hardest, such as pensioners. So it's an open question out there, and they're still - and the deal is far from over. So there's a lot of negotiation that's still to take place. And it will be really important bringing on board the support from the local government.

INSKEEP: Is there even the slightest chance that Puerto Rico might grow out of this problem? I mean, it's been hit by a hurricane a few years ago, but that's not going to happen every year. Isn't there a chance of just economic growth that would take care of this?

VALENTIN ORTIZ: Yeah, and that's the biggest concern - how much you will put on the table and, you know, how much money or Puerto Rico's own resources will go to pay its debt that will no longer go to rebuild the infrastructure or - you know, and restart the economy.

INSKEEP: Right.

VALENTIN ORTIZ: So that's the question right now, and let's see what happens.

INSKEEP: Luis Valentin of Puerto Rico's Center for Investigative Journalism. Thanks.

VALENTIN ORTIZ: Thank you. Transcript provided by NPR, Copyright NPR.