Puerto Rico Needs a Better Debt Deal
Rosy assumptions about what the island can afford to pay bondholders threaten to doom its future.
In need of a better restructuring.
Photographer: Angel Valentin/Getty Images
History is littered with examples of ill-designed debt restructuring exercises that soon unraveled at great economic and human cost. Judging by the recently announced debt restructuring arrangement for Puerto Rico’s sales tax-backed bonds (COFINA), the island’s economy risks joining those ranks.
The COFINA restructuring doesn’t go nearly far enough. It saddles Puerto Rico with escalating debt payments for the next 20 years, even though the economy has been in a decade-long slump. It also sets a dangerous precedent. If Puerto Rico’s government and the oversight board created by Congress agree to similar terms with creditors who hold General Obligation bonds, it will be just a question of time before the commonwealth is forced to default yet again or curtail public pension payments upon which more than 325,000 workers depend.