Jan 18, 2022 - Politics & Policy

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

Shawna Chen

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.

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

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