Federal Judge OKs Plan to Settle Puerto Rico's Bankruptcy

A federal judge on Tuesday approved a plan that will save Puerto Rico from bankruptcy.

The plan, also known as the "Plan of Adjustment," was approved by Federal Judge Laura Taylor Swain after five years the U.S. territory declared that it would not be able to repay its creditors.

According to ABC News, the plan marks the largest municipal debt restructuring in the history of the U.S.

Furthermore, the plan's approval came after heated hearings in recent months and as the U.S. territory thrives to recover from different natural calamities such as hurricanes, earthquakes, and the pandemic.

Puerto Rico's Plan to Resolve Bankruptcy

Puerto Rico's financial oversight said that the "Plan of Adjustment" would cut the island's outstanding debt by 80 percent, Axios reported. In addition, the plan will also make Puerto Rico save at least $50 billion in payments.

Natalie Jaresko, the executive director of the federal control board appointed to supervise the island's finances, also noted that the plan would also reduce the claims against the island's government from $33 billion to just over $7.4 billion.

Jaresko furthered that the "Plan of Adjustment" also avoided "pension cuts" that created a rift between Puerto Rico's legislature and the island's governor.

The plan also included "guardrails" that will regulate Puerto Rico's future debt issuance. The said guardrails include debt issuances capped at 7.94 percent, long-term borrowing limited to capital improvements, a requirement for any refinancing to provide cash flow service, and maturities capped at 30 years.

The approval of the plan gathered different sympathies from Puerto Rico officials.

In a joint statement, Jaresko and Oversight Board Chairman David Skeel commented on Judge Swain's ruling on Tuesday, saying that they owe the federal judge gratitude for her "tireless leadership, exemplary diligence" in addressing Puerto Rico's debt crisis.

However, Jaresko and Skeel acknowledged that the island needs further reform for improvement.

"Puerto Rico needs to continue to reform itself to ensure a prosperous future and determined by its people," the oversight board officials said.

Jaresko and Skeel also discussed the implication of the island's debt, claiming that Puerto Rico's inability to pay its creditors affected the island's economic recovery as well as the life of its residents.

Puerto Rico's Senate President José Luis Dalmau also lauded the judge's move, calling it a "transcendental step" for the island's economic recovery.

Meanwhile, Puerto Rico Governor Pedro Pierluisi in a statement acknowledged that the plan approved by the federal judge is not "perfect." However, the governor pointed out that the plan will protect the island's pensioners, municipalities, and universities that serve their people.

"We still have a lot of work ahead of us," Governor Pierluisi said.

Puerto Rico Bankruptcy

In 2015, the island's government declared that it could not pay its more than $70 billion public debt load which accumulated from decades of mismanagement, corruption, and excessive borrowing.

Because of this, the U.S. Congress created the financial oversight and management board for the island in 2017. However, Puerto Rico declared bankruptcy in 2017.

According to Council on Foreign Relations (CFR), Puerto Rico's economy was also ravaged by sustained recession over the past 14 years. In 2017, the island's debt skyrocketed hitting $123 billion.

Experts say that Puerto Rico's economic crisis is rooted in the 20th-century legislation that urged the island in relying on debt to fill the gaps in federal funding.

"Borrowing is playing with fire... You need to have people know what they're doing. Otherwise, one can return to this disaster we call a debt crisis," Puerto Rico economist and professor, José Caraballo said.

This article is owned by Latin Post.

Written By: Joshua Summers

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