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

Could Nemtsov Threaten Putin in Death as in Life?

Dynamic and debonair opposition leader had supported liberal economic reforms, criticized Russian president's aggression in Ukraine More

Oil Smuggling Highlights Challenges in Shutting Down IS Finances

Pentagon spokesman says Islamic State 'certainly continues to get revenue from the oil industry black market' but that airstrikes have made a dent More

India Focuses on Infrastructure, Investment to Propel Economy

Government expects economy to grow at 8 to 8.5 percent in next fiscal year 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.
US Supreme Court Hears Hijab Discrimination Casei
X
Katherine Gypson
February 25, 2015 11:30 PM
The U.S. Supreme Court has heard opening arguments in a workplace religious discrimination case that examines whether a clothing store can refuse to hire a young woman for wearing the headscarf she says is a symbol of her Muslim faith. Katherine Gypson reports from the Supreme Court.
Video

Video US Supreme Court Hears Hijab Discrimination Case

The U.S. Supreme Court has heard opening arguments in a workplace religious discrimination case that examines whether a clothing store can refuse to hire a young woman for wearing the headscarf she says is a symbol of her Muslim faith. Katherine Gypson reports from the Supreme Court.
Video

Video Falling Gas Prices Hurt Nascent Illinois Hydraulic Fracturing Industry

Falling oil prices are helping consumers purchase cheaper petroleum at the pump. But that’s made hydraulic fracturing or “fracking” less economically viable for the companies in the United States invested in the process. VOA’s Kane Farabaugh reports on one Midwestern town that was hoping to change its fortunes by cashing in on the next big U.S. oil boom.
Video

Video Fighting in Sudan's South Kordofan Fuels Mass Displacement

Heavy fighting in Sudan's South Kordofan state is causing hundreds of thousands to flee into uncertain conditions. Local aid organizations estimate as many as 400,000 civilians have been internally displaced since the conflict began more than three years ago, while another 250,000 have fled across the border to refugee camps in South Sudan. VOA's Adam Bailes reports.
Video

Video Lao Dam Project Runs Into Opposition

A Lao dam project on a section of the Mekong River is drawing opposition from local fishermen, international environmental groups and neighboring countries. VOA's Say Mony visited the region to investigate the concerns. Colin Lovett narrates.
Video

Video A Filmmaker Discovers Her Biracial Identity in "Little White Lie

Lacey Schwartz grew up in an upper middle-class Jewish family, in a town in upstate New York where almost everyone she knew was white. She assumed that she was, as well. Her recent documentary, Little White Lie, tells the story of how she uncovered the secret of her true racial background. VOA’s Carolyn Weaver has more on the film.
Video

Video Deep Under Antarctic Ice Sheet, Life!

With the end of summer in the Southern hemisphere, the Antarctic research season is over. Scientists from Northern Illinois University are back in their laboratory after a 3-month expedition on the Ross Ice Shelf, the world’s largest floating ice sheet. As VOA’s Rosanne Skirble reports, they hope to find clues to explain the dynamics of the rapidly melting ice and its impact on sea level rise.
Video

Video US-Cuba Normalization Talks Resume Friday

Negotiations aimed at normalizing diplomatic relations between the U.S. and Cuba resume Friday. On the table: lifting a half-century trade embargo and easing banking and travel restrictions. There's opposition in Congress, but some analysts say there may be sufficient political and economic incentives in both nations for a potential breakthrough this year. VOA's Mil Arcega reports.
Video

Video Pakistan's Deadline For SIM Registration Has Cellphone Users Scrambling

Pakistani cell phone users have until midnight Thursday to register their SIM cards, or their service will be cut off. While some privacy experts worry about government intrusion, many Pakistanis are just worried about keeping their phone lines open. VOA Deewa reporter Arshad Muhmand has more from Peshawar.
Video

Video Myanmar Warns Factory Workers to End Strikes

Outside Myanmar's main city Yangon, thousands of workers walked off their jobs earlier this month demanding a doubling of their wages, pay raises after a year and input from labor unions on industrial regulations. Since Friday, the standoff has grown more tense as police moved in to disrupt the sit-ins, resulting in clashes that injured people from both sides. VOA correspondent Steve Herman visited industrial zones which have become a focus of Myanmar's fledgling workers rights movement.
Video

Video Oscar Winners Do More Than Thank the Academy

The Academy Awards presentation is Hollywood’s night to reward the best movies from the previous year. It’s typically a lot of glitter, a lot of thank you’s, a lot of speeches. But many of this year’s speeches carried messages beyond the thank you's. VOA’s Carolyn Presutti takes a look.

All About America

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More