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Puerto Rico’s Dilemma After Hurricane María: Rebuild or Pay the Debt?

SAN JUAN, PUERTO RICO — Hearing room #3 of the U.S. District Court in San Juan is full—the words heard among the collective murmur are in English. They are pronounced mainly by white men in dark suits who become silent all at once, when a Black woman enters: federal bankruptcy judge Laura Taylor Swain.

It is August 9, forty minutes before the session begins, the third one under Title III of the federal PROMESA Act (Puerto Rico Oversight, Management and Economic Stability Act of 2016), where the government of Puerto Rico’s bankruptcy case is being discussed. Here, you can feel the tension for the legal battle to collect $74.7 billion in debt, the biggest in history for a U.S. jurisdiction, expected to create repercussions on the entire population and people not on the island. This debt is added to the pension system obligations, which reach $49 billion.

The crowd of more than 100 lawyers in this hearing room do not accurately reflect the representation of the majority of the people the case impacts. Many of the people holding government debt do have voices speaking for them. For example, the so-called individual bondholders: rookie investors who trusted their savings to mutual funds such as Franklin Advisers and Oppenheimer Funds, or brokerage houses such as Popular Securities, UBS or Santander Asset Management.

On the contrary, the legal battle for public funds under Title III is carried out by specialized investors: mutual funds companies, hedge funds experts in litigating to collect debt, and bond insurance companies (monolines) responsible for paying their clients’ total debt. Assurers are jointly claiming $21 billion, according to the certified Fiscal Plan.

The litigation by these companies’ lawyers —as large amounts of money are being placed to win or lose on Puerto Rico’s debt— sometimes becomes violent.

Tim Holler