Puerto Rico debt restructure plan threatens public pensions

A federal control board created by Congress to address Puerto Rico’s debt on Monday filed a restructure plan that threatens a 10-percent cut to public pensions without any deal with retirees.

The board presented a 233-page plan that would reshuffle at least $35 billion in public debt and more than $50 billion in public pension liabilities, The Associated Press reported.  

The proposal, which was filed in U.S. court, includes an up to 8.5 percent cut to monthly pensions of at least $1,500 to help the territory deal with the biggest U.S. municipal bankruptcy filing in history. The board said it received “substantial” support for the plan from creditors, specifically those who have more than $13 billion worth of bonds.

Board Chair David Skeel labeled the strategy “a milestone for Puerto Rico’s recovery, stability, and prosperity,” according to the AP. 

“This plan substantially reduces the burden of debt payments on future generations, stabilizes and protects pensions that have been mismanaged for so long, and affirms the collective bargaining agreements of government workers,” he said.

Puerto Rico Gov. Pedro Pierluisi, who has previously said he’d reject any plan with high pension cuts, said the government will declare in court that it does not fully support the plan, but still, he called the proposal a step in the right direction. 

“Puerto Rico needs to leave this bankruptcy process behind in order to achieve the sustainable economic development to which we all aspire and eliminate the uncertainty inherent in this process, as well as the million-dollar restructuring expenses that the government has had to incur,” he said in a statement obtained by the AP.

“My administration has been emphatic that this pension cut is not reasonable,” he added.

If approved by a judge, the proposal could reduce the island’s debt by 80 percent from $35 billion to $7.4 billion and could save the government almost $60 billion in debt service payments. 

Puerto Rico’s financial turmoil dates back to 2014 when it announced it could not pay its public debt, which reached $74 billion through bonds and $49 billion in unpaid pensions. The territory filed for bankruptcy in 2017 — the same year the island was struck by Hurricane Maria causing billions of dollars in damage and many deaths.

The Supreme Court unanimously ruled last June that the financial oversight board established by Congress to oversee Puerto Rico’s finances after the bankruptcy was constitutional.