Hearings Begin On Puerto Rico Debt Crisis
DAVID GREENE, HOST:
There's a whole lot at stake today in a federal courthouse in San Juan, Puerto Rico. Precisely - over $120 billion in debt that the U.S. territory owes to bondholders, to other creditors, also to retirees with pensions. So a federal judge is presiding over a legal process set up by Congress to help Puerto Rico restructure its massive public debt.
And this is similar to the bankruptcy proceedings Detroit went through, but Puerto Rico's debt is actually many times larger. NPR's Greg Allen is in San Juan covering the first hearing in what could be a long legal process. Hey, Greg.
GREG ALLEN, BYLINE: Morning, David.
GREENE: So is the Detroit comparison right, I mean, a place mired in debt and filing for bankruptcy?
ALLEN: Yes, but unlike Detroit, Puerto Rico can't access Chapter 9 bankruptcy under U.S. bankruptcy law 'cause it's a U.S. territory. So because of that, Congress last year passed a law which sets up a fiscal oversight board that's been working with the government here. The government's been working to cut spending and improve revenues. And they've submitted a fiscal plan that leaves them just $800 million a year to service its debt. And that's just a quarter of what it owes all its creditors.
So they're having this Title III hearing it's called. It's being done in federal district court here. U.S. District Judge Laura Taylor Swain will now be sorting through the claims and begin deciding who gets what out of all this money.
GREENE: Well, how did Puerto Rico - this U.S. territory - manage to run up so much - so many billions and billions in debt?
ALLEN: Well, you know, it doesn't happen overnight, of course. It's - it built up really over more than a decade here. Puerto Rico's been in a recession now since 2006. And that's led this huge exodus of people from the island. As you know, 450,000 people left here over the last decade, so revenues have dropped.
The government's funded operating expenses in some cases by issuing bonds and accumulating debt. In 2015, the governor declared that they couldn't pay the debt. They began to default. And that forced Congress to take action last year, passing this law that created a structure for the island to begin restructuring its debt.
I talked to an economist, Sergio Marxuach with the Center for a New Economy here in San Juan. He said there's little hope of getting the economy going until the island actually resolves this issue of its crushing debt.
SERGIO MARXUACH: Right now, we have this big cloud over the economy, right? We have all this debt that hasn't been restructured and which we cannot pay. So to the extent you still have that uncertainty hanging over the economy, I think it's going to make it very difficult for Puerto Rico to attract the amount of investment we need to really get the economy going.
GREENE: Yeah. Greg, it sounds like - I mean, you and I reported on people leaving the island in economic distress. It sounds like this just snowballs. Once people leave, the economy gets even worse because the revenue's not coming in and they get in this position.
ALLEN: That's right. It's been this spiral. And it's not clear when the spiral's going to end, but this process that's beginning today will start to put this behind them they're hoping. But it's going to be worse than the Detroit bankruptcy in many cases because there's so many different classes of bondholders, many who think they have precedence over others.
You've got all these retirees that are owed pensions. The governor's said they're going to get at least a 10 percent cut, at least some of them will. You've got other creditors. They've just closed 180 public schools on the island, which left parents and students very upset. There's a half - there's $500 million in cuts proposed for the university here, and there's a student strike.
So lots of pain to come here. And the governor is going to be releasing a budget a little later this month which will show a lot more pain coming. Among the things that are going to happen is I think big cuts in health care benefits here. So it's going to be a messy thing here.
And it could take as long as Detroit's case. That was about a year and a half. This one some people think might take much longer, maybe four or even five years.
GREENE: Wow. All right, talking with NPR's Greg Allen in San Juan, Puerto Rico, about that U.S. territory trying to find a way to climb out from billions of dollars in debt. Greg, thanks a lot.
ALLEN: You're welcome.
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