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Critics say Puerto Rico's bankruptcy deal will endanger funds for public services

A MARTINEZ, HOST:

Officials in Puerto Rico have reached a deal with the island's creditors on restructuring the massive debt load that drove it to bankruptcy four years ago. The U.S. territory has been buckling under the massive weight of more than $70 billion it owes. Now a federal bankruptcy judge is considering whether to approve the agreement.

NPR's Adrian Florido reports.

ADRIAN FLORIDO, BYLINE: In Puerto Rico, the No. 1 question about this deal is whether the government will have enough money left over to provide vital public services in a commonwealth where almost half the island lives below the poverty line.

(SOUNDBITE OF MUSIC)

UNIDENTIFIED PERSON: (Chanting in Spanish).

FLORIDO: Margarita Jimenez is convinced it will not. She was marching outside the federal courthouse in San Juan last week, carrying a sign.

MARGARITA JIMENEZ: (Speaking Spanish).

FLORIDO: Her sign read they're stealing our homeland.

JIMENEZ: (Speaking Spanish).

FLORIDO: "There are a lot of people who are leaving Puerto Rico," she said, "because the government is making it so hard to live here." After Puerto Rico began defaulting on $72 billion of debt in 2016, Congress appointed a federal oversight board to manage the territory's budget and negotiate with its creditors. That board has already reached agreements on smaller chunks of that debt. This new deal is on the largest chunk - $33 billion - with creditors agreeing to accept billions less than they're owed.

Governor Pedro Pierluisi has said it is a good deal and the only way Puerto Rico can emerge from bankruptcy and rebuild its tattered economy.

(SOUNDBITE OF ARCHIVED RECORDING)

PEDRO PIERLUISI: (Through interpreter) If I had doubts that this debt restructure plan is a good deal for Puerto Rico, I wouldn't support it. The important thing in the years ahead is that our government be fiscally responsible and not repeat mistakes of the past, so we don't find ourselves in this painful situation again.

FLORIDO: But the pain may be about to get worse. Budget cuts have slashed essential services in recent years - from public safety to health care to education. Many Puerto Rican fear those cuts are likely to deepen because this new agreement, they say, does not forgive enough of the debt.

EVA PRADOS: The issue that we have been asking in Puerto Rico is how much we really can pay. This is the really big question here.

FLORIDO: Eva Prados runs a group that has spent years calling for a full public audit of Puerto Rico's debt. This debt deal, she insists, will saddle the island with huge payments for the next three decades. All told, Puerto Rico could pay upwards of 30 cents of every dollar in its general budget on debt and unfunded pension obligations - a huge amount, and far more than the most indebted U.S. state.

PRADOS: If we can't afford this new plan of adjustment, we will have more austerity measures in Puerto Rico. We will have more public funds cut - in education, in health, in the public university.

FLORIDO: Officials in Puerto Rico acknowledge that keeping up with debt payments will require continued budget cuts.

Daniel Santamaria Ots is an economist with Espacios Abiertos, a pro-transparency group in San Juan. He thinks the oversight board could have negotiated more aggressively with the banks and hedge funds that own most of Puerto Rico's bonds. They bought up those bonds for a fraction of their full value after Puerto Rico defaulted and after Hurricane Maria.

DANIEL SANTAMARIA OTS: And they are going to have returns of investment right now of three, four, five times what they invested. And those returns are at the expense of people of Puerto Rico.

FLORIDO: Like most observers, Santamaria Ots says it's likely Judge Laura Taylor Swain will approve the debt agreement now before her. But he hopes she'll consider closely whether it does enough to protect the essential services Puerto Ricans rely on.

Adrian Florido, NPR News, San Juan, Puerto Rico.

(SOUNDBITE OF IDK'S "PUERTO RICO (INSTRUMENTAL)") Transcript provided by NPR, Copyright NPR.

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