The U.S. Treasury's new plan to help bail Puerto Rico out of its economic situation will favor the retirees over the bondholders. The Puerto Rican government owes $72 billion debt in municipal bonds to investors, and an additional $43 billion to pay off its obligations to retirees. The Treasury strategy aims to protct the older retirees and encourage the younger ones to stay in the country. However, a backlash is growing from the investors who are middle-class Puerto Ricans who had invested their life savings in the bonds.
According to the New York Times, the Puerto Rican pension fund is "almost depleted," unable to provide funding for the 330,000 elderly and middle-aged who are about to retire. The U.S. Treasury intends to cushion the blow to these retirees by prioritizing them over the bondholders and investors who had bought into Puerto Rico's municipal bonds. Protecting the older retirees is a calculated move to dampen the emotional unrest in the nation, while encouraging the younger generation to stay put in it instead of looking for jobs in other countries like the U.S.
CNBC reports that the Obama Administration crafted the proposal in October of 2015 as part of a debt restructuring that will act as a contingency in case the Puerto Rican government does go bankrupt. Republican Senators were said to have walked away from the proposal, dissatisfied over the language of the proposal. The Obama Administration and the Democratic Senators are sympathetic to the Puerto Rican government's request for a fail-safe mechanism against bankruptcy, while the Republican lawmakers are watching out for the interest of the investors.
A CNN report puts a human face on these investors, wiping out the stereotype that they are cold-hearted 'vultures' out for their return on investment. Many of these bondholders are actual Puerto Rican middle-class professionals who had invested their life savings on the Puerto Rican bonds, fueled by patriotism while assured of the bonds' stability. The U.S. Treasury's move would further decrease the value of their bonds and reduce their chances of earning back their investments. As a result, many of these investors, who are ironically in their 50s, are forced to continue working instead of retiring, as their parents, children, and even grandchildren have grown dependent on them.
