Puerto Rico's Surplus to Drop by $660 Million in Revised Plan

(Bloomberg) -- Puerto Rico’s forecast for its budget surplus over the next six years will be cut by $660 million because of the revisions to the plan for pulling the bankrupt island out of a decade-long recession.

The federal board and Governor Ricardo Rossello Sunday reached an agreement to scale back proposed labor reforms, such as ending Christmas bonuses, that the panel was pushing for in the island’s multi-year fiscal plan. That will cost Puerto Rico $660 million through fiscal 2023 and reduce its surplus over the next 30 years to $35 billion from $39 billion, Natalie Jaresko, the board’s executive director, said in a call Wednesday with reporters.

Jaresko has said the agreement with the governor was necessary to push ahead with reforms to increase business investment on the island and make Puerto Rico more competitive.

“This is all being done specifically focused on ensuring that structural reforms have less risk of implementation, there’s more certainty of them and the economic future of Puerto Rico and its financial capacity,” Jaresko said.

While the smaller surplus means less money to repay bondholders, the agreement prevented a legal fight between the oversight board and the island that could have delayed any recovery. How much of the $74 billion of debt is repaid will depend on the outcome of negotiations in bankruptcy court.

While it’s not certain that all of Puerto Rico’s surplus will go to bondholders, the amount does show the island’s capacity to repay, Jaresko said.

“It doesn’t mean that every dollar will go into any particular use but it is what defines to a large extent what is possible,” Jaresko said.

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