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What the recently approved bankruptcy deal means for Puerto Rico


The word promesa is Spanish for promise. The law known as PROMESA was passed by the U.S. government to resolve a financial crisis. In 2017, Puerto Rico faced more than $70 billion of public debt, plus another $50 billion in pension obligations, and the island declared itself bankrupt. Under PROMESA, the U.S. government appointed a board to find a solution. Puerto Ricans would have to live with it. Now, almost five years later, a federal judge has signed off on the board's plan to reduce Puerto Rico's debt and climb out of bankruptcy.

With us is the executive director of that financial oversight and Management Board for Puerto Rico. Natalie Jaresko is on the line from San Juan. Natalie Jaresko, nice to speak to you. Welcome.

NATALIE JARESKO: Thank you, Mary Louise - happy to be here.

KELLY: So you led negotiations for this deal. May I ask you in a few sentences, in plain English - just lay out for us the basics. How is this going to work?

JARESKO: Well, it was a very, very complex task. As we move forward, this will become much simpler for Puerto Rico. We'll be reducing that $33.7 billion in claims to an outstanding $7.4 billion in debt.

The plan has more to it than debt. Debt is a big piece of it. But as you mentioned, there were also $50 billion of unfunded pension liabilities. And this deal does not reduce in any way or cut the monthly benefits of the pensioners. So that is something we're very, very proud of and very happy we could accomplish.

KELLY: Well, you mentioned pensions, and I want to stay there for a second. My understanding based on our reporting is under this deal, say, a teacher who is currently retired drawing a pension will never get another cost-of-living increase for the rest of their lives. If they're getting a $1,500 a month pension now, 20 years from now, that's what they will be getting. Is that correct? And how do people retire with that kind of structure in place?

JARESKO: The answer is yes, but that cost of living went away long before PROMESA and long before this deal. That was part of the pension reform that happened even prior to PROMESA. But what happens is they get an incremental benefit of Social Security, if you can imagine teachers in Puerto Rico who were not part of the Social Security system.

The Teachers Retirement System was completely insolvent when we started. There was enough money in that system to pay pensions for one year. So it's really not fair to look at it as if they would have gotten it anyways.

KELLY: To broaden this out beyond teachers, how do you reassure Puerto Ricans who are worried that this deal still leaves their government with too much debt to pay off and that - if the government can't pay it off, that there may be cuts to social services or higher taxes coming at them?

JARESKO: The debt burden on, let's say, the average tax dollar that's collected is so much lower than it was before. If before this, 25 cents of every dollar went to pay debt, now it's less than seven cents of every dollar.

KELLY: So just to hold you on that point for a second, are you saying it is your belief that Puerto Rico will be able to pay off this debt?

JARESKO: Absolutely - not only my belief but the judge's. The judge ruled that the plan is feasible.

KELLY: Another question - Puerto Ricans calling for some of this debt to be audited because of concerns that some of it was in violation of Puerto Rico's constitutional debt limit. Why not toss that portion of the debt out?

JARESKO: We did do a full investigation of the debt as a tool to aid in this restructuring, and we ourselves came to the question of the validity of some of the debt. But that process - we actually filed suit on those that we believed were invalid, and that helped us to negotiate down the recoveries.

But the bottom line is that there is no way to know who would have won any of those lawsuits. It would have taken years of litigation, and it would have caused even higher costs. Getting out of bankruptcy benefits every single person on this island.

KELLY: So I hear you saying you think this is a really good deal for Puerto Rico. This unlocks a more promising future for Puerto Rico. And yet a lot of Puerto Ricans are mad. The board is deeply unpopular. What is it that Puerto Ricans don't get about this deal that you have managed to pull together?

JARESKO: Well, the first thing I want to say is that there are a lot of Puerto Ricans who do think it is the best way forward. They may not be tweeting, and they may not be screaming at the top of their lungs. But I can't tell you the number of messages we've gotten from Puerto Ricans who understand.

The one thing people need to recognize is that without PROMESA, they would not have had an opportunity to restructure the debt. And so at a bare minimum, there has to be a level of gratitude because otherwise we'd be paying 25 cents of every dollar, not seven. And we wouldn't have saved $50 billion in debt service.

KELLY: Natalie Jaresko, executive director of the Financial Oversight and Management Board for Puerto Rico. Thank you very much for your time today.

JARESKO: Thank you, Mary Louise. Transcript provided by NPR, Copyright NPR.

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Mary Louise Kelly is a co-host of All Things Considered, NPR's award-winning afternoon newsmagazine.
Miguel Macias
Miguel Macias is a Senior Producer at All Things Considered, where he is proud to work with a top-notch team to shape the content of the daily show.