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Puerto Rico exits bankruptcy after U.S. judge approves multibillion-dollar restructuring plan

January 19, 2022 at 4:15 a.m. EST
Puerto Rico's economy has been battered by a debt crisis, natural disasters and the coronavirus pandemic. (Carlos Giusti/AP)

A federal judge on Tuesday approved a plan to restructure billions of dollars of Puerto Rico’s debt, allowing the U.S. territory to exit bankruptcy following a years-long string of litigation that racked up nearly $1 billion in legal and administrative costs.

The plan, put forth by a bipartisan oversight board established as part of the 2016 Puerto Rico Oversight, Management and Economic Stability Act — “Promesa,” or “promise” in Spanish — was approved by Judge Laura Taylor Swain of the U.S. District Court for the Southern District of New York, who has overseen Puerto Rico’s bankruptcy proceedings.

The restructuring reduces $33 billion of the territory’s debt by 80 percent, according to the Financial Oversight and Management Board for Puerto Rico, whose seven members are presidential appointees. (Democratic Puerto Rico Gov. Pedro Pierluisi’s office also gives him a seat.) Puerto Rico had entered bankruptcy with more than $72 billion in debt, with an additional $55 billion owed in unfunded pensions. Under pressure from civil service unions, the board agreed in October to remove cuts to pension plans from the restructuring agreement.

Pierluisi said in a statement on Twitter that the plan “represents a great step for the economic recovery of our island.” Though the plan was “not perfect,” he said, it was “very good for Puerto Rico.”

The restructuring will allow Puerto Rico to start paying back its debts and is likely to lower the territory’s financing costs. But it will also require budget cuts — much to the disapproval of the board’s critics.

Opponents of the restructuring agreement voiced concerns that it would only exacerbate economic struggles on the island of more than 3.2 million people. Puerto Rico, already weakened by the financial troubles and its poor electrical infrastructure, was battered by Hurricane Maria in 2017, leaving the island with an extended power outage. As many as 4,645 people were estimated to have died as a result of the hurricane, according to a study by Harvard University. The coronavirus pandemic further worsened existing problems on the island, and many of the territory’s young people, who are U.S. citizens, have moved away.

Swain “turned her back on Puerto Ricans” by approving a plan that “leads us down the path of austerity and bankruptcy,” Julio López Varona, an activist with the Center for Popular Democracy, a left-leaning advocacy group, said in a statement.

After Hurricane Maria, Puerto Rico was in the dark for 181 days, 6 hours and 45 minutes

He said the plan was “predicated on continuing the suffering that we have endured for decades and that has led thousands of Puerto Ricans to leave the islands,” noting that those who stayed faced rising living costs, a lack of resources and “poor access to essential services.”

Many Puerto Ricans have called for a probe into the cronyism and potential malfeasance that led to the debt being piled up over the years. Swain has stressed that the restructuring does not prevent investigations into the origins of the debt crisis.

The board said in a statement that Puerto Rico’s “inability to pay its debt has hampered the economic recovery and affected the lives of every resident and the success of every business” on the island.

The plan will put a plug on the ballooning legal fees racked up by the bankruptcy proceedings. Swain, the judge, had warned in 2018 that Puerto Ricans would not be able to bear the weight of the fees — which included a request by McKinsey & Co. for $2 million a month.

Silvia Foster-Frau contributed to this report.

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