Late on January 24, 2018, the government of Puerto Rico released a revised fiscal plan under which the commonwealth would pay nothing in debt service over the next five years and would only be able to support $2.5 billion to $14 billion of debt in the long term, a fraction of its current level. The plan suggests that holders of its bonds might receive as little as five cents on the dollar.

The plan assumes that the federal government will provide $35.3 billion in federal disaster assistance for the devastation caused by Hurricane Maria. That figure is one third the amount that the island’s Governor Ricardo Rossello recently requested but still more than Congress is likely to provide.1

The forecast in the plan shows that the government expects to have a shortfall, before any debt is paid, of $3.4 billion through 2022.

Officials project the island’s economy will contract by 11.2 percent in the fiscal year ending in June, the steepest decline since 2003. The economy is hopefully expected to reverse in the following years with the help of the projected $35.3 billion in federal disaster funds and $22 billion of insurance claims.2

However, the fiscal plan forecasts an additional 10 percent decline in population over the next two years, on top of the sharp drop in recent years. The student population, down 40 percent since 2000, is expected to shrink another 16 percent by fiscal year 2022.

The fiscal plan is subject to approval by the Oversight Board that Congress established when it passed the Puerto Rico Oversight, Management and Economic Stability Act. The plan also would require the approval of U.S. District Judge Laura Taylor Swain who is overseeing the island’s bankruptcy proceeding.

If the plan is approved, it will serve as a basis for difficult negotiations with creditors.3

As previously reported, the island has unpaid debt outstanding of $74 billion and an underfunded $50 billion pension fund.

At present, what is much needed is federal funds for reconstruction as well as a debt write-down in a court of law. Debt relief is the basis for a recovery that could lift the economy out of recession.

Much criticism has been made of the sluggish U.S. government’s financial response to a devastated Puerto Rico, whose residents are U.S. citizens.4

The island’s hopes for federal money look dubious given that the Treasury Department has not yet released the $4.9 billion appropriated by Congress in the wake of Hurricane Maria.

The transmission grid remains in tatters with about a third of the island’s inhabitants still without electricity.5


  1. Mufson, Steven, “Puerto Rico offers fiscal plan settling debt for pennies on the dollar,” The Washington Post, January 25, 2018.
  2. Kaske, Michelle and Yalixa Rivera, “Puerto Rico Plan Leaves Almost No Money for Bond Payments,”, January 24, 2018.
  3. Endnote 1.
  4. Peluso, Romano I. “Most of Puerto Rico is Still Without Electricity After Three Months,” Perkins Coie, LLP,, December 14, 2017.
  5. Endnote 1.