NPR’s Adrian Florido speaks with Natalie Jaresko, who led negotiations with Puerto Rico’s creditors as the U.S. territory seeks to emerge from bankruptcy.
ADRIAN FLORIDO, HOST:
Almost five years ago, the US territory of Puerto Rico declared bankruptcy. The island was saddled with more than $70 billion in public debt plus $50 billion in pension obligations for which it had no money. Since then, a US Congress-appointed fiscal watchdog has been negotiating to try to get Puerto Rico’s creditors to accept less money than is owed to them. Now, a major deal has been struck and a federal bankruptcy judge is considering approving it. Puerto Rico’s governor and legislature back the deal, saying it’s the territory’s only chance to emerge from bankruptcy. But the deal also has many critics who say it doesn’t do enough to make Puerto Rico’s debt affordable. To discuss this agreement, we are joined by the woman who negotiated it. Natalie Jaresko is Executive Director of the Puerto Rico Financial Oversight and Management Board. Ms. Jaresko, welcome.
NATALIE JARESKO: Thank you.
FLORIDO: I would like to start by asking you to give me a very brief idea of the extent of Puerto Rico’s debt.
JARESKO: So like you said earlier, Adrian, when the financial oversight board was created in 2016, it was the result of racking up over $70 billion in debt across a dozen issuers or more and an additional $50.55 billion in unfunded pension liabilities. And compare that to GNP of about $80 billion a year. This is a crushing level of debt for this island.
FLORIDO: And why do you consider this agreement that you made with Puerto Rico’s creditors a good one? What does he achieve?
JARESKO: So this plan gets us out of bankruptcy, and it does so in an affordable and sustainable way. It resolves about half of that debt that I described – so about $30 billion, $35 billion of claims against the Commonwealth, against the territorial government, and a large portion, about $50 billion, of unfunded pension liabilities. And so it accomplishes everything that I think PROMESA set out to accomplish. It ensures that the debt is reduced. He ensures that lawsuits are resolved. It provides stability so that investments can return to the island, and it provides assurance that – because this is a sustainable level of debt, the government will be able to use all revenues additional, any additional funds coming in to improve the situation on the island, whether it’s education, public safety or whatever.
FLORIDO: You mentioned PROMESA. I just need to note that it was federal law that essentially established Puerto Rico’s ability to declare bankruptcy and also created the council that you now lead. As I mentioned, the Governor of Puerto Rico, Pedro Pierluisi, and his legislature both support this agreement, but the agreement has been the subject of much criticism from leading economists, from many Ordinary Puerto Ricans. I want to ask you about a couple of those criticisms, and the first is this argument that this deal is actually not affordable for the island because when you add in other obligations like its pension obligations and so on 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. How about that?
JARESKO: That’s not true. People misunderstand numbers. If you look at pre-bankruptcy, the government was spending about 25 cents of every dollar of taxpayer revenue on debt. Once this bankruptcy is over, she will pay 7 cents of every dollar. This is a substantial reduction in debt service. That’s a $50 billion reduction over the life of the debt. I think the other thing that people don’t recognize is that we’ve limited debt to less than 8% of revenue, and that’s something that’s a very reasonable level. This is an affordable level to pay around 8% of your – less than 8% of your income towards debt.
FLORIDO: 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 own a lot of Puerto Rico’s debt, are walking away from it. fare with a profit, while others, like retired teachers, for example, will never see another cost-of-living increase on their pensions again. 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 that have taken over government bonds after their value has fallen. Listen to what he said.
DANIEL SANTAMARIA OTS: So a very cheap price for them – and they’re going to have returns on investment right now of three, four, five times what they invested. And these returns are at the expense of the people of Puerto Rico. Hedge fund behavior, it’s legal so far, but it’s an unethical and unfair outcome.
FLORIDO: Legal but unethical and unfair – do you agree with his assessment? And if so, why couldn’t you get those creditors to give in a bit more?
JARESKO: We did everything within the law, within federal bankruptcy law – and I think that’s really an important thing 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 US Bankruptcy Rules, PROMESA and Bankruptcy Rules. One thing 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 that – when you have that negotiation. What is their cost basis, which Daniel refers to, is not an issue, not a relevant issue in bankruptcy. So it’s – unfair and unjust, I don’t think it applies because it’s – the fairness, the fairness of this is exactly what the judge is going to determine when she confirms or when she returns her decision.
FLORIDO: Natalie Jaresko is executive director of Puerto Rico’s Board of Oversight and Financial Management. Natalie, thank you for joining us.
JARESKO: Thank you.
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