Jan 18, 2022 - Politics & Policy

Federal judge approves Puerto Rico's plan to cut debt by 80%

Photo of a giant banner of the Puerto Rican flag hanging between two buildings

Puerto Rico prepares for the general election in San Juan on Nov. 3, 2020. Photo: Alejandro Granadillo/Anadolu Agency via Getty Images

A federal judge on Tuesday approved a plan for Puerto Rico to get out of bankruptcy five years after the island said it would not be able to repay its creditors.

Why it matters: The restructuring plan will cut Puerto Rico's outstanding debt by 80% and save the government over $50 billion in payments amid the island's struggle to recover from multiple hurricanes, earthquakes and COVID-19, Puerto Rico's financial oversight board said.

Catch up quick: Puerto Rico began increasingly relying on debt to cover spending after 1996, when the U.S. stopped allowing American businesses to operate tax-free in Puerto Rico, per the Council on Foreign Relations (CFR).

  • Limited representation in D.C., local government mismanagement and the lack of federal tax provisions have all contributed to the crisis, according to CFR.

What they're saying: "Today begins a new chapter in PR’s history," tweeted the Financial Oversight and Management Board.

  • "The agreement, while not perfect, is very good for Puerto Rico and protects our pensioners, university and municipalities that serve our people," Gov. Pedro R. Pierluisi said in a statement to the New York Times. "We still have a lot of work ahead of us."

Worth noting: Members of the financial oversight board, who are primarily federally appointed and not elected, have faced criticism and accusations of incompetence, per the Washington Post.

Go deeper