Puerto Rico’s Debt Deal Leaves No Room for Error
Its debt is more sustainable, but still much higher per capita than even the most indebted U.S. state.
Puerto Rico’s Oversight Board has put forward a debt restructuring proposal that, if approved by U.S. District Court Judge Laura Taylor Swain, would allow the commonwealth to emerge from bankruptcy. It promises to make the island’s debt more sustainable and includes necessary protections for pensions and public workers. Yet notwithstanding potential complaints from bondholders, it also leaves no room for error. Neither does it relieve Congress of its responsibility to support the island’s economic recovery.
Prior to the proposed debt restructuring plan, Puerto Rico had around $50 billion of tax-supported debt. That was far more than the island could afford to pay out of a $70 billion economy. Annual debt service was over 28% of Puerto Rico’s revenues, more than five times the average state and three times the average of the 10 most indebted states.
[Read the full op-ed by Antonio Weiss, Desmond Lachman, and Brad Setser in Bloomberg.]