7
/ Wednesday, August 18, 2021
FOMB Touts Plan of Adjustment in its FY 2021 Report
First step towards a ‘new era of growth’ for Puerto Rico Rosario Fajardo
rfajardo@wjournalpr.com
W
@RosarioWJournal
Editor’s note: Second in a series on the FOMB’s FY 2021 Annual Report ith the U.S. District Court scheduled to hold hearings later this fall on the Plan of Adjustment to restructure billions of dollars in Puerto Rico government debt, the Financial Oversight and Management Board (FOMB) said it hopes the court will confirm the plan by the end of the year so that the island can exit bankruptcy and move on to a new “era of stability and prosperity.” The Plan of Adjustment is among the highlights of the FOMB’s 232-page Fiscal Year Annual Report. “The proposed Plan of Adjustment is a milestone on this path towards reducing Puerto Rico’s debt to sustainable levels and enabling economic growth,” said FOMB Executive Director Natalie Jaresko, adding that the plan comprises a series of agreements with a very diverse group of stakeholders, such as bondholders, unsecured creditors, retirees and unions. Puerto Rico’s bankruptcy is not only the largest public debt restructuring in the history of the United States, but also extraordinarily complex, Jaresko noted. Puerto Rico’s $72 billion in debt was spread over more than a dozen public entities. The average debt service the government alone had to pay each year was $2.7 billion, and without PROMESA would have reached as much as $4.2 billion. “In addition, the government owed retirees more than $55 billion in pension liabilities. Puerto Rico’s largest government pension system was about 1 percent funded – there was virtually no money left to pay retired government employees and pensions are now paid from the government budget rather than the insolvent pension trust,” she said. The Plan of Adjustment for the central government is the largest part of Puerto Rico’s debt restructuring, with about $35 billion in claims by bondholders and creditors, and more than $55 billion in pension liabilities. By the time COVID-19 hit in early 2020, the Oversight Board had already restructured
In addition, the Oversight Board agreed with the Public Servants United of Puerto Rico (SPU)/ AFSCME Council 95 to provide up to $1.2 billion to restore employee contributions to the Sistema 2000 retirement plan that contributors lost because the money the government withdrew from employee paychecks never ended up in their retirement accounts. The Plan of Adjustment also includes a $2,600 deposit per employee to defined contribution accounts of members hired before the implementation of Sistema 2000 who were also affected by the 2013 freeze of accrued interest. In addition, the Plan makes teachers and judges for the first time eligible for Social Security. “Meanwhile, holders of general obligation bonds and Public Building Authority bonds face cuts of more than 25 percent. Holders of bonds issued by the Employee Retirement System face a greater than 80 percent cut. Creditors who filed an unsecured claim against the government, for example vendors who have not been paid as well as other pending litigations against the government, could see the value of their claim reduced by about 80 percent,” Jaresko said.
Protects Small Claims
Still, she noted that the FOMB also included terms that protect those with only very small Natalie Jaresko of the FOMB >Carlos Rivera Giusti, Archive claims. “Individual claims lower than $20,000, or if multiple claims are filed by the same COFINA’s debt, reducing it by $6 billion, from claimant, below $40,000 in aggregate, will receive $18 billion to $12 billion and saving Puerto Rico payment in full as part of the $17.5 billion in total debt service ‘convenience class.’ Someone payments, and reduced the who claims their vehicle was Government Development Bank wrongfully confiscated by the debt by $3 billion, from $5 billion government and filed a claim to $2 billion, she explained. for $5,000, for example, would The Plan of According to the FOMB, the be fully reimbursed. Certain Adjustment lifts a terms of the Plan of Adjustment Puerto Rico residents who filed weight off future provide the largest recovery of claims for unpaid pensions or generations by all claims classes to government back pay, or missing income reducing $35 billion retirees. The Oversight Board and tax refunds will be paid in full of existing claims by the Official Committee of Retirees once the claim is validated almost 80 percent, also agreed to take several steps through an Administrative Claims to $7.4 billion of to strengthen the pension system Reconciliation (ACR) process” she new debt, as per the going forward. “For example, explained. FOMB. under the Plan of Adjustment, the Overall, the Plan of Government would establish a Adjustment lifts a weight off pension reserve fund to support future generations by reducing payment of pensions in any $35 billion of existing claims by economic or political environment. In addition, if almost 80 percent, to $7.4 billion of new debt. “The in any given year the Government budget surplus Oversight Board firmly believes that this is the is larger than projected in the Certified Fiscal best plan we could achieve under the legal and Plan, the reductions in retirement benefits can be fiscal circumstances within which Puerto Rico finds reversed,” Jaresko said. itself,” Jaresko affirmed.
In fact,
