When Congress passed a budget deal on February 9 that earmarked $16 billion in relief aid for Puerto Rico, it was intended for hurricane recovery. But the move left bondholders hopeful that it will provide relief for the island’s dire financial situation.
On February 12, the Puerto Rican government released a new, optimistic fiscal plan. As The Washington Post reports, the plan says that the island’s government expects to have “positive cash flow in as little as two years and topping $1 billion a year starting 2020—creating a target for bondholders eager to convince the bankruptcy court that the island can soon resume interest payments.”
If all goals in the plan are met, the government would have a $2.8 billion surplus by fiscal year 2023.
This new plan is in direct contrast to economic predictions released by Puerto Rican officials just weeks ago. As Colorlines previously reported, on January 24, Governor Ricardo A. Rosselló announced that in the aftermath of Hurricane Maria, the island would be unable to pay down any of its more than $70 billion of defaulted debt over the next five years.
While the new, positive forecast is welcome news for the island, some politicians fear that the money set aside by Congress for hurricane relief efforts—intended specifically for housing and development projects, funding Medicaid and restoring the electrical grid—will be used to indirectly pay bondholders. Per The Post:
“We need to be unambiguously clear that the money Congress approved was for rebuilding Puerto Rico and to aid its citizens, not to line the pockets of Wall Street investors that bought the island’s debt on the cheap,” Rep. Nydia M. Velázquez (D-N.Y.) said in a statement Friday. “It would be a moral outrage if money intended for Puerto Rico’s vulnerable was siphoned off to creditors and vulture funds.”
In response to the announcement of the new fiscal plan, Velázquez and six other lawmakers wrote to the financial oversight board created by the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), urging Congress to guarantee that the funding will be used for Maria recovery efforts.
The fiscal plan must still be approved by the board, which is comprised of seven members who oversee creditor and court negotiations with the goal of reducing the island’s debt. It also faces criticism from some in the financial industry. “[The plan] is built on sparse data and outright mischaracterizations,” a group of creditors told The Post.
The Post reports that the price of Puerto Rican commonwealth bonds have soared in the days since Congress passed the rescue package.