Puerto Rico’s nearly five-year bankruptcy battle was resolved Tuesday after a federal judge signed a plan that slashes the U.S. territory’s public debt load as part of a restructuring and allows the government to start repaying creditors.
The plan marks the largest municipal debt restructuring in U.S. history and was approved after the judge held heated hearings in recent months and as the island struggles to recover from deadly hurricanes, earthquakes and a pandemic that deepened its economic crisis.
“Today begins a new chapter in PR’s history,” tweeted a federal control board that was appointed to oversee Puerto Rico’s finances and had been working with the judge on the plan.
The board said that the plan signed by federal judge Laura Taylor-Swain cuts Puerto Rico’s public debt by 80% and saves the government more than $50 billion in debt service payments. The plan notes that Puerto Rico has sufficient resources to pay the debt through 2034, but critics have said the government does not have the finances required to meet debt service payments and warned of more austerity measures.
Puerto Rico Gov. Pedro Pierluisi said that while the plan is not perfect, it represents a big step for the island's economic recovery.
“We still have a lot of work ahead of us,” he said.
José Luis Dalmau, president of Puerto Rico's senate and a member of the main opposition party, also praised the plan and called it a transcendental step for the island's economic recovery.
“From this moment on, a new page of fiscal responsibility, good governance and unity begins, which will lead to a more prosperous economy, a climate of job creation and greater fiscal stability,” he said.
Puerto Rico’s government declared in 2015 that it could not afford to pay its more than $70 billion public debt load accumulated the debt through decades of mismanagement, corruption and excessive borrowing. It then filed for the largest municipal bankruptcy in U.S. history in 2017.