Puerto Rico releases new plan to cut debt by 33 percent

Puerto Rico releases new plan to cut debt by 33 percent
© Getty Images

Puerto Rico, owner of the largest United States bankruptcy in history, released a plan to cut its $129 billion debt by 33 percent Friday, according to The New York Times

The $129 billion figure may not seem like a large number compared to the U.S.'s $22.6 trillion national debt, but Puerto Rico's inability to pay its debts was so dire that Congress passed, in 2016, the Puerto Rico Oversight, Management and Economic Stability Act, a law that essentially gives territories bankruptcy protection.

Created by a federal oversight board, the plan now goes to a federal judge, who will review the fairness and feasibility of the proposal. 


The plan, in its current structure, is far from a done deal. Puerto Rico's debt is complex; the U.S. territory has a laundry list of parties that have a stake in the debt. Bondholders, pensioners and current government employees are only a fraction of them.

One of the big proposed cuts would reduce Puerto Rico's bond obligations 45 percent from $75 billion to $41 billion. The huge reduction would mean many bondholders would only get a third or two-thirds of what they're owed, the Times reported.

Puerto Rico also owes $54.5 billion in pension obligations and the proposed cut would lower that number to $45 billion. However, in the process, retirees' pensions could be slashed by as much as 8.5 percent.

Additionally, there are worries that reducing retirees' pensions could affect the island's economic growth, since retirees make up a large percentage of the economy.

If the plan is passed and ends up having the desired consequences, it could become a model for states like Illinois that have considerable debt of their own.

“Sustainability is not a requirement of the law, but we really wanted it to be at the center of everything we did,” the executive director of the oversight board Natalie Jaresko told the Times. “We weren’t going to end up in a situation where 10 years from now, 12 years from now, Puerto Rico would have to restructure again.”

The goal, Jaresko noted, is to reduce Puerto Rico's debt to a level that it could feasibly control.