Judge Threatens Plan for Puerto Rico to Avert Financial Catastrophe

The law, known as the Recovery Act, was meant to give Puerto Rico’s public corporations protections similar to bankruptcy. Unlike American cities like Detroit, which used federal bankruptcy law to sort out its finances, Puerto Rico, a United States commonwealth, is not permitted to declare bankruptcy.

In his decision on Friday night, Judge Francisco A. Besosa of the United States District Court in San Juan, Puerto Rico, said the Recovery Act overstepped federal law, and he enjoined commonwealth officials from enforcing it. The government said on Monday that it planned to appeal the judge’s ruling.

Without the Recovery Act, government officials worry that attempts to gain concessions from creditors and unions at public corporations like the deeply indebted Puerto Rico Electric Power Authority will dissolve into chaos.

The court ruling frightened some investors, who worry that the island is running out of ways to escape its basic predicament: tens of billions of dollars in debt and a stagnant economy.

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The New York Times