ADRIAN FLORIDO, HOST:

It was almost five years ago that the U.S. territory of Puerto Rico declared bankruptcy. The island was buckling under more than $70 billion of public debt plus 50 billion in pension obligations it didn't have the money for. Since then, a fiscal oversight board appointed by the U.S. Congress has been negotiating to try to get Puerto Rico's creditors to accept less money than they're owed. Now a major deal has been reached, and a federal bankruptcy judge is considering whether to approve it. Puerto Rico's governor and legislature support the deal, saying it's the territory's only chance to emerge from bankruptcy. But the deal also has many critics who say it doesn't do enough to make Puerto Rico's debt affordable. To discuss this deal, we're joined by the woman who negotiated it. Natalie Jaresko is executive director of the Financial Oversight and Management Board for Puerto Rico. Ms. Jaresko, welcome.

NATALIE JARESKO: Thank you.

FLORIDO: I'd like to start by asking you to give me just a sort of very brief sense of the magnitude of Puerto Rico's debt.

JARESKO: So as you said earlier, Adrian, when the financial oversight board was established in 2016, it was a result of having accumulated over $70 billion of debt across a dozen or more issuers and an incremental $50, $55 billion in unfunded pension liabilities. And compare that to GNP of about $80 billion a year. That is an overwhelming debt level for this island.

FLORIDO: And so why do you consider this deal that you've reached with Puerto Rico's creditors now a good one? What does it achieve?

JARESKO: So this plan takes us out of bankruptcy, and it does it in a affordable, sustainable way. It resolves about half of that debt that I described - so about $30, $35 billion of claims against the Commonwealth, against the territorial government and a large portion, about 50 billion, of the pension unfunded liabilities. And so it accomplishes everything I think the PROMESA's set out to accomplish. It ensures that the debt is reduced. It ensures that the lawsuits are resolved. It provides stability so that investment can return to the island, and it provides confidence that - because it is a sustainable level of debt, that the government will be able to use all incremental revenues, all incremental funds going forward to improve the situation on the island, whether it's education, public safety or other.

FLORIDO: You mentioned PROMESA. I should just note that that is the federal law that essentially established Puerto Rico Rico's ability to declare bankruptcy and also created the board that you now lead. As I mentioned, Puerto Rico's Governor Pedro Pierluisi and its legislature both support this deal, but the deal has faced many criticisms from some prominent economists, from a lot of everyday Puerto Ricans. I want to ask you about a couple of those criticisms, and the first is this argument that this deal is actually not affordable for the island because when you add other obligations like its pension obligations and the rest of its debt that is not part of this deal, the government is still going to be devoting a really large chunk of its annual budget to paying off its creditors rather than on essential public services. What do you say to that?

JARESKO: It's not true. People are misunderstanding the numbers. If you look at what it was prior to bankruptcy, the government was spending approximately 25 cents of every dollar of taxpayer revenues on debt. After this bankruptcy is finished, it will be paying 7 cents of every dollar. It's a substantial reduction in debt service. It's a reduction of 50 billion over the life of the debt. I think the other thing people don't recognize is that we limited the debt to less than 8% of revenues, and that is something that is a very reasonable level. It is an affordable level to pay approximately 8% of your - less than 8% of your revenues towards debt.

FLORIDO: Another criticism of this deal is that, you know, some of Puerto Rico's richest and most powerful creditors, like banks and hedge funds that own a lot of Puerto Rico's debt, are making off with a profit, whereas others, like retired teachers, for example, will never see another cost-of-living increase to their pensions again. I'd like you to listen to Daniel Santamaria Ots, an economist who spoke to me about the fact that a lot of the territory's debt is owned by banks and hedge funds that scooped up government bonds after their value had tanked. Listen to what he said.

DANIEL SANTAMARIA OTS: So a very cheap price for them - and they are going to have returns of investment right now of three, four, five times what they invested. And those returns are at the expense of people of Puerto Rico. The behavior of the hedge funds, it's legal so far, but it's an unethical and unfair and unjust outcome.

FLORIDO: Legal but unethical and unfair - do you agree with his assessment? And if so, why could you not have pushed these creditors to give up a little bit more?

JARESKO: We have done everything within the law, within federal bankruptcy law - and I think that's really an important element to understand here. This isn't a sovereign debt negotiation without rules. This is something PROMESA put us into the U.S. federal court system and U.S. bankruptcy rules, PROMESA and bankruptcy rules. One thing that those rules do is they don't allow you to discriminate between holders. You don't know who the ultimate holder is when you're making this - when you're having this negotiation. What their cost basis is, which is what Daniel is referring to, is not an issue, not a relevant issue in bankruptcy. So it's - unfair and unjust I don't believe applies because it is - the fairness, the justness of it is exactly what the judge is going to be determining when she confirms or when she issues her decision.

FLORIDO: Natalie Jaresko is executive director of the financial oversight and management board for Puerto Rico. Natalie, thanks for joining us.

JARESKO: Thank you.

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