News / USA

Puerto Rico Approves Public Pension System Overhaul

Puerto Rico's Governor Alejandro Garcia Padilla, Jan. 2, 2013.
Puerto Rico's Governor Alejandro Garcia Padilla, Jan. 2, 2013.
Reuters
Puerto Rico's governor has signed an overhaul of the U.S. territory's cash-short public pension system that lawmakers passed late on Thursday in a bid to soothe investors and shore up the country's sputtering economy.

The new pension law will raise the retirement age for some state workers, increase worker contributions to the plan and lower monthly pensions and benefits for some public workers. It will also reduce state workers' Christmas bonuses and eliminate summer bonus payments.

Officials said the overhaul of the notoriously weak and underfunded system, bitterly opposed by labor unions, was a crucial step to avoid a potentially devastating credit downgrade that would drive up borrowing costs and further weaken pubic finances.

"his has not been a simple process," Governor Alejandro Garcia Padilla said as he enacted the legislation on Thursday night. "It has been a topic that has been avoided for the past 60 years. No administration has taken the responsibility of reforming the retirement system," the governor said.

The government's main retirement fund faces an unfunded liability of more than $37 billion. The fund, which serves more than 200,000 current and retired government workers, is only about 7 percent funded and officials have warned it could run out of money by 2018.

"No retirement system in the world is as broken as ours," Senate President Eduardo Bhatia said on Thursday before the overhaul legislation was approved by both houses of the Caribbean island's legislature.

All three major credit ratings firms have recently downgraded Puerto Rico's bond ratings to just above junk-bond status, pointing to widening budget deficits as the island struggles to emerge from a five-year recession that has pushed unemployment to nearly 15 percent.

The Caribbean island is a leading borrower in the $3.7 trillion U.S. municipal bond market. Any further downgrade by rating agencies would sharply increase the cost of borrowing for Puerto Rico, which needs to be able to issue bonds at attractive rates to meet pressing short-term financing needs.

Standard & Poor's Ratings Services, the credit ratings agency, welcomed the move in a statement on Friday but said more needed to be done to address the island's public finances.

"We believe that the impact of these measures on the commonwealth rating will largely be determined by the degree of progress Puerto Rico makes in eliminating its $2.1 billion structural general fund deficit," the agency said.

To help narrow the deficit, top Puerto Rico government officials say they are evaluating tax increases and other measures to increase annual revenue by more than $1 billion.
 
Tax noncompliance is one of the problems that have prompted comparisons between Puerto Rico and Greece.

Although the municipal bond market could show some positive reaction to the pension reform news, Puerto Rico's yields were already the highest of any borrower in the U.S. municipal bond market.

On Thursday, Puerto Rico's 10-year yield spread over triple A bonds ended at a four-year high of 310 basis points, unchanged from Wednesday, Municipal Market Data showed.

The 10-year Puerto Rico yield spread hit a record high at 340 basis points in February 2009 during the financial crisis.

You May Like

Hong Kong Democracy Calls Spread to Macau

Macau and Hong Kong are China’s two 'special administrative regions' which gives them a measure of autonomy More

After Nearly 2 Years, Pistorius Remains Elusive

Reporter Anita Powell reflects on her experience covering the Olympic athlete's murder trial More

Kenyan Coastal Town Struggles With Deadly June Attacks

Three months after al-Shabab militants allegedly attacked their town, some Mpeketoni residents are still bitter, question who was really behind the assaults More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Obama to Ramp Up Anti-Ebola Efforts in Africai
X
Luis Ramirez
September 15, 2014 11:01 PM
President Barack Obama on Tuesday will unveil his plan to ramp up efforts against the spread of the Ebola virus in Africa. VOA White House Correspondent Luis Ramirez reports.
Video

Video Obama to Ramp Up Anti-Ebola Efforts in Africa

President Barack Obama on Tuesday will unveil his plan to ramp up efforts against the spread of the Ebola virus in Africa. VOA White House Correspondent Luis Ramirez reports.
Video

Video West Trades Accusations Over Ransoms

As world leaders try to forge a common response to the threat posed by Islamic State militants in Iraq and Syria, there is simmering tension over differing policies on paying ransoms. In the past month, the jihadist group has beheaded two Americans and one Briton. Both countries refuse to pay ransom money. As Henry Ridgwell reports for VOA from London, there is uncertainty in the approach of some other European nations.
Video

Video Scotland Independence Bid Stokes Global Interest

The people of Scotland are preparing to vote on whether to become independent and break away from the rest of Britain, in a referendum being watched carefully in many other countries. Some see it as a risky experiment; while others hope a successful vote for independence might energize their own separatist demands. Foreign immigrants to Scotland have a front row seat for the vote. VOA’s Henry Ridgwell spoke to some of them in Edinburgh.
Video

Video Washington DC Mural Artists Help Beautify City

Like many cities, Washington has a graffiti problem. Buildings and homes, especially in low-income neighborhoods, are often targets of illegal artwork. But as we hear from VOA’s Julie Taboh, officials in the nation's capital have come up with an innovative program that uses the talents of local artists to beautify the city.
Video

Video US Muslim Leaders Condemn Islamic State

Leaders of America's Muslim community are condemning the violent extremism of the Islamic State group in Iraq and Syria. The U.S. Muslim leaders say militants are exploiting their faith in a failed effort to justify violent extremism. VOA correspondent Meredith Buel reports.
Video

Video Americans' Reaction Mixed on Obama Strategy for Islamic State Militants

President Barack Obama’s televised speech on how the United States plans to “degrade and destroy” the group known as the Islamic State reached a prime-time audience of millions. And it came as Americans appear more willing to embrace a bolder, tougher approach to foreign policy. VOA producer Katherine Gypson and reporter Jeff Seldin have this report from Washington.
Video

Video Authorities Allege LA Fashion Industry-Cartel Ties

U.S. officials say they have broken up crime rings that funneled tens of millions of dollars from Mexican drug cartels through fashion businesses in Los Angeles. Mike O'Sullivan reports that authorities announced nine arrests, as 1,000 law enforcement agents fanned out through the city on Wednesday.
Video

Video Bedouin Woman Runs Successful Business in Palestinian City

A Bedouin woman is breaking social taboos by running a successful vacation resort in the Palestinian town of Jericho. Bedouins are a sub-group of Arabs known for their semi-nomadic lifestyle. Zlatica Hoke says the resort in the West Bank's Jordan Valley is a model of success for women in the region.


Carnage and mayhem are part of daily life in northern Nigeria, the result of a terror campaign by the Islamist group Boko Haram. Fears are growing that Nigeria’s government may not know how to counter it, and may be making things worse. More

AppleAndroid