Puerto Rico: Bond Holders versus Pensioners

 The Story:

The Oversight Board created to put the finances of the Commonwealth of Puerto Rico back on a sound footing has approved an austerity plan that is generous toward the commonwealth’s bond holders, and stingy toward its pensioners. The Governor has vowed defiance.

The Background:

In August 2015, Puerto Rico defaulted on debt payments. In response, the U.S. Congress created a law establishing a quasi-bankruptcy status for the Commonwealth. Puerto Rico availed itself of that status in May 2017. That is why it is now under the supervision of the Financial Oversight Management Board (FOMB).

It is not only the Governor who objects to the FOMB’s plans. Larry Summers, who served under President Clinton as US Secretary of the Treasury and under President Obama as director of the National Economic Council, says that the board “will countenance too much debt service and too much austerity because of rosy scenario economics and excessive faith in structural reforms.”

The Thing to Know: 

Puerto Rico’s fiscal situation worsened in September when Hurricane Maria devastated much of its infrastructure.

 

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