Puerto Rico emerges from bankruptcy after tough restructuring

SAN JUAN, Puerto Rico (AP) — Puerto Rico's government officially emerged from bankruptcy on Tuesday by completing the largest public debt restructuring in U.S. history, nearly seven years after announcing that it could not pay its more than $70 billion in debt.

The exit implies that the US territorial government will resume payments to its creditors for the first time in several years and will face outstanding payments of about $1 billion filed by residents and local businesses.

“This is a significant success,” said Natalie Jaresko, executive director of the federal board that oversees Puerto Rico's finances and its debt restructuring process. “Staying bankrupt has been a drag on the economy in several respects.”

Bankruptcy led to much-criticized austerity measures, on an island that paid around $1 billion in bills to consultants and lawyers in other expenses during the process.

Leaving bankruptcy was a priority for the junta and for Jaresko, who had earlier announced that he would retire on April 1. No successor has been appointed yet. The junta is expected to remain in its work until Puerto Rico has had four consecutive balanced budgets, a feat it has not yet achieved.

The restructuring plan was approved in January by a federal judge. It reduces claims against the Puerto Rican government from $33 billion to just $7.4 billion. Seven cents of every taxpayers' dollar will go to cover debts, compared to the previous 25 cents.

“This is a momentous moment,” Gov. Pedro Pierluisi said. “The plan is not perfect (...) but it has a lot of good things.”

The junta has repeatedly clashed with Pierluisi and previous governments, especially over a proposal to reduce some monthly pensions and which was eventually canceled.

The plan also deposits 1.5 billion in public pension systems and creates a pension fund that will be financed with more than $10 billion in the coming years.

“For decades, previous governments have been negligent in setting aside enough money,” Jaresko said.

While many welcomed Puerto Rico's coming out of bankruptcy, Jaresko said it is unlikely that the island will soon be able to access the financial markets because it has yet to update its audited financial statements.

Puerto Rico accumulated more than $70 billion in public debt and more than $50 billion in public pensions outstanding after decades of corruption, mismanagement and excessive indebtedness. The US Congress created the federal junta in 2016, a year after the island's government said it could not pay its debt.

The government of Puerto Rico filed in 2017 the largest municipal bankruptcy in the history of the United States. Months later came Hurricane Maria, which destroyed the island's power grid and caused billions of dollars worth of damage.

The island is not yet recovering from the hurricane and a series of strong earthquakes that hit its southern region from the end of 2019. The coronavirus pandemic has also been a major setback.

The bankruptcy processes of public highway and electricity companies, which owes almost 9 billion dollars, the largest debt of a government agency, remain unresolved.

In early March, the governor of Puerto Rico announced that he would cancel a debt restructuring agreement for the power company, saying that rising inflation, rising oil prices and other factors had changed significantly since the agreement was negotiated with creditors in 2019.

Jaresko said the junta hoped to resume negotiations, mediation and talks with everyone who bought bonds issued by the power company.