Puerto Rico bankruptcy deal negotiator says it will give island long-term stability: NPR

NPR’s Adrian Florido speaks with Natalie Jaresko, who has led negotiations with Puerto Rico’s creditors as the US seeks to emerge from bankruptcy.


Almost five years ago, the US territory of Puerto Rico declared bankruptcy. The island was crumbling under more than $ 70 billion in public debt plus 50 billion in pension obligations for which it did not have the money. Since then, a congressionally appointed tax watchdog has negotiated to try to get Puerto Rico’s creditors to accept less money than they are owed. Now a major deal has been reached and a federal bankruptcy judge is considering approving it. Puerto Rico’s governor and legislature back the deal, saying this is the territory’s only chance to come out of bankruptcy. But the deal also has plenty of critics who say it isn’t doing enough to make Puerto Rico’s debt affordable. To discuss this agreement, we are joined by the woman who negotiated it. Natalie Jaresko is the Executive Director of the Supervisory and Financial Management Board of Puerto Rico. Ms. Jaresko, welcome.


FLORID: I would like to start off by asking you to give me just kind of a very brief overview of the extent of Puerto Rico’s debt.

JARESKO: As you said earlier, Adrian, when the Financial Supervisory Board was formed in 2016, it was the result of having accumulated over $ 70 billion in debt with a dozen issuers. or more and an additional $ 50.55 billion in unfunded pension liabilities. And compare that to the GNP of about $ 80 billion a year. This is an overwhelming level of debt for this island.

FLORIDO: So why do you consider that this deal you made with the Puerto Rican creditors is now a good one? What does he achieve?

JARESKO: So this plan gets us out of bankruptcy, and it’s doing it in an affordable and sustainable way. It resolves about half of that debt that I’ve described – so about $ 30.35 billion in Commonwealth claims, against the Territorial government, and a large chunk, about $ 50 billion, of the unfunded pension liability. And so it does everything that I think PROMESA set out to achieve. It ensures that the debt is reduced. He ensures that disputes are resolved. It provides stability so that the investment can come back to the island, and it gives the assurance that – because it is a sustainable level of debt, that the government will be able to use all the additional income, any additional funds in the future to improve the situation on the island, be it education, public safety or whatever.

FLORID: You mentioned PROMESA. I just have to note that it was federal law that basically established Puerto Rico’s ability to file for bankruptcy and also created the board of directors that you now lead. As I mentioned, Puerto Rico Governor Pedro Pierluisi and his legislature both support this deal, but the deal has faced a lot of criticism from prominent economists, many ordinary Puerto Ricans. I want to ask you a few questions about a few of these critiques, and the first is this argument that this deal is actually not affordable for the island because when you add other obligations like its pension obligations and the remainder of its debt which is not part of this agreement, the government will still devote a very large part of its annual budget to the repayment of its creditors rather than to essential public services. What do you say to that?

JARESKO: It’s not true. People misunderstand the numbers. If you look at what it was like before the bankruptcy, the government was spending about 25 cents of every dollar of taxpayer income on debt. Once that bankruptcy is over, he will pay 7 cents of every dollar. It is a substantial reduction in debt service. That’s a $ 50 billion reduction over the life of the debt. I think the other thing people don’t recognize is that we’ve limited the debt to less than 8% of income, and that’s something that’s a very reasonable level. It’s an affordable level to pay around 8% of your income – less than 8% of your income to go into debt.

FLORIDA: Another criticism of this deal is that, you know, some of Puerto Rico’s richest and most powerful creditors, like the banks and hedge funds that hold a lot of Puerto Rico’s debt, are making a profit. , while others, like retired teachers, for example, will never see another increase in the cost of living of their pensions. I would like you to listen to Daniel Santamaria Ots, an economist who told me about the fact that much of the territory’s debt is held by banks and hedge funds who recovered government bonds after the fall of their value. Listen to what he said.

DANIEL SANTAMARIA OTS: So a very low price for them – and they’re going to have returns on their investment right now of three, four, five times what they’ve invested. And these returns are at the expense of Puerto Rico. The behavior of hedge funds is legal so far, but it is an unethical and unfair and unfair outcome.

FLORIDO: Legal but unethical and unfair – do you agree with his assessment? And if so, why couldn’t you have pushed these creditors to give in a little more?

JARESKO: We’ve done everything within the law, under the federal bankruptcy law – and I think that’s really an important piece to understand here. This is not a sovereign debt negotiation without rules. This is something that PROMESA put us in the US federal court system and the US bankruptcy rules, PROMESA and the bankruptcy rules. One of the things these rules do is they don’t allow you to discriminate between holders. You don’t know who the ultimate holder is when you do this – when you have this negotiation. The basis of their cost, which Daniel refers to, is not an issue, not a relevant issue in bankruptcy. So it’s – unfair and I don’t think it applies because it does – the fairness, the correctness of the thing is exactly what the judge is going to determine when it confirms or when it does. makes its decision.

FLORIDA: Natalie Jaresko is Executive Director of the Supervisory and Financial Management Board of Puerto Rico. Nathalie, thank you for joining us.

JARESKO: Thanks.


Copyright © 2021 NPR. All rights reserved. See the terms of use and permissions pages on our website at www.npr.org for more information.

NPR transcripts are created within an emergency time frame by Verb8tm, Inc., an NPR entrepreneur, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative recording of NPR’s programming is the audio recording.

Janet E. Fishburn