Standoff Creates Uncertainty in Puerto Rico’s Bankruptcy Process
San Juan, Puerto Rico
A plan to bail Puerto Rico out of the bankruptcy that has strangled its economy for years appears to be in serious jeopardy, amid opposition from politicians and other critics who argue it does not go far enough to protect pensions and government services and could put the island further in debt.
Porto Rico The House of Representatives leadership proposed a bill it negotiated with the Puerto Rico Financial Oversight and Management Board (FOMB), a federally appointed body that has overseen the island’s finances since 2016. It passed 30-15 in the House this week, but legislative leaders say it doesn’t have enough support to pass in the Senate.
The oversight board, in a statement, had warned that the island would face dire financial consequences if the Senate did not approve the proposal by Friday, saying, “As a result, Puerto Rico would remain bankrupt and the burden of unsustainable debt will remain on the shoulders of all Puerto Ricans, threatening the economic progress of the island.
There was no vote.
Governor Pedro Pierluisi, who leads the pro-state New Progressive Party, backs the bill, which was drafted by the People’s Democratic Party favoring the territorial status quo. Despite the deadlock, Pierluisi was not ready to declare the effort dead.
“It’s obvious to me that the next step is for House and Senate leaders to agree to make some minor but necessary changes to the measure to get it approved by both legislative bodies,” he said. to the Miami Herald in a written statement. “As soon as that happens, I will give my signature.”
Supporters say they hope the law will end the island’s debt problems and the tenure of the oversight board while protecting retirees’ pensions and the public university system. The bill includes no reductions in pensions for retired public employees, a total allocation of $500 million for the University of Puerto Rico for five years, and additional funding for municipal waste management services. There’s also $1 million for the Puerto Rico Department of Health to conduct a study on how to establish a universal health care plan.
The debt adjustment plan would reduce the island’s outstanding debt from $33 billion to $7 billion and limit annual public debt payments to $1.15 billion a year, according to the Supervisory Board. Bondholders would receive more than $7 billion in cash upfront, while House 1003, known as the “Law to End Puerto Rico’s Bankruptcy,” allows for the issuance of 7 $.4 billion in new bonds – a key part of the adjustment plan as it stalls.
“When a person wants to refinance their debts, they have to take out a new loan to repay the old loan,” explained José Caraballo Cueto, professor and economist at the University of Puerto Rico. “In the case of the government, to restructure old debt, it has to issue new bonds. And this is the new debt. In the case of the government, it is a law that must be passed.
“The Beginning of a New Debt”
But critics of the bill — who include lawmakers from multiple parties — say it could lead to more debt and austerity measures that would cut essential public programs and services. Local groups and unions opposed to the plan celebrated the legislative blockade, saying it was the result of their protests and political pressure.
“It is the constant activism of different spaces – teachers, pensioners, students, allies – that has won this respite. This is a great lesson in people power,” wrote Senator María de Lourdes Santiago, of the Puerto Rican Independence Party.
Other lawmakers opposed to the bill include independent Senator José Vargas Vidot, who joined a crowd of protesters Thursday night outside the Capitol building. He described the project as “bad for the people, bad for the economy, bad for the retirees, bad for the University of Puerto Rico”.
“There’s no way they can convince me as long as the project is the start of new debt,” Vargas Vidot said, as protesters chanted. “There must be a negotiating table where all sectors are genuinely represented.”
Sergio Marxuach, director of policy at the Center for a New Economy think tank, told the Miami Herald that the language in the bill regarding funding for the University of Puerto Rico is vague.
“What he’s saying is support the University of Puerto Rico’s budget,” the analyst said. “It doesn’t really create a legal commitment.”
He added that the law itself states that funding for municipalities is contingent on receiving additional funding from the federal government for Medicaid services, which would allow the island government to reallocate the funds.
“It doesn’t just depend on the board, but also what happens in Washington,” he said.
The governor and lawmakers in favor of the measure had negotiated as much as they could with the oversight board, said Heriberto Martinez, director of the Ways and Means Committee of the Puerto Rico House of Representatives, securing concessions such as zero pension cuts and college funding. system and cities.
He added that compromises were part of the process, especially since it is the island’s government that is on the verge of bankruptcy.
“It’s not all of what we are negotiating and what we wanted to get, but we understood that we had obtained sufficient protections which would be worse if the project was not approved,” he said. told the Miami Herald.
Uncertain next steps
Judge Laura Taylor Swain, who is overseeing the bankruptcy proceedings in federal court, called a meeting scheduled for Monday morning with Pierluisi and lawmakers to discuss the impasse. Swain has the final say on the debt adjustment plan.
In a Friday afternoon press conference, Representative Rafael Hernández Montañez, Speaker of the House and co-author of the bill, doubled down on his support for the measure. The PPD politician also warned that failure to pass the legislation opens up the possibility that the island’s government will have less say in how debt restructuring and payment is handled.
The purpose of Monday’s meeting, he said, is for the court to explore alternatives on how to move the debt process forward, including measures “without legislative action.”
“In other words, how she can settle the controversy without the intervention of the government of Puerto Rico,” he said.
This story was originally published October 23, 2021 8:00 a.m.