AP, September 11, 2015
Puerto Rico is bracing for widespread spending cuts after the government released a long-awaited fiscal reform plan on Wednesday that would reduce much of the island’s US $72-billion public debt and calls for restructuring the remainder at the expense of bondholders.
The five-year plan proposes that the government cut subsidies to municipalities and the University of Puerto Rico, offer early retirement and reorganise or merge state agencies. It also calls on the government to extend until 2021 legislation that would freeze new hires, salary increases and collective bargaining agreements.
Governor Alejandro Garcia Padilla acknowledged in a televised address that Puerto Ricans already have had to endure new taxes, an increase in utility bills and layoffs during a nearly decade-long economic stagnation.
It is unclear how creditors and bondholders will react to the plan, which addresses only US $47 billion of the island’s public debt and still requires approval by Puerto Rico’s legislature and governor. Garcia has said the US $72-billion public debt is unpayable and needs restructuring.
Even if the plan is implemented, officials warned the government would still face a US $14-billion financing gap from 2016 to 2020, and that it would not be able to meet debt payments as scheduled because it could affect essential services. Officials warned that a compromise with creditors is needed to avoid what they called a disorderly default and legal morass.
“The plan itself will not get us out of the hole we find ourselves in,” Garcia said. “It’s time that creditors come to the table and share in the sacrifice.”
The plan states that Puerto Rico should seek equal treatment from the US government regarding tax incentives and health-care reimbursements.
The economic crisis has sparked an exodus of Puerto Ricans to the US mainland, with an estimated 144,000 people leaving the territory between 2010 and 2013. About a third of all people born in Puerto Rico now live in the US.