Puerto Rico's Government Development Bank Risks Receivership

Puerto Rico’s Government Development Bank, whose regulator says faces a cash shortfall of as much as $1.3 billion in June, will continue to operate on its own -- for now.

The bank, which lends to the commonwealth and its municipalities, is insolvent, Puerto Rico’s Commission of Financial Institutions, the bank’s regulator, concluded in its most recent report on the GDB’s finances. That determination allows the island’s Treasury Secretary to ask a court to appoint a receiver to oversee the GDB. It’s a move the administration won’t make at this time, Jesus Manuel Ortiz, a spokesman for Governor Alejandro Garcia Padilla, told reporters Wednesday in San Juan.

“We are constantly monitoring the liquidity of the GDB and no receiver will be named in the short term,” Ortiz said.


The GDB serves as the commonwealth’s financial adviser and structures municipal-debt sales for the island. The bank’s cash crunch has hampered its ability to lend to the commonwealth and provide short-term funds. The GDB is experiencing a liquidity shortfall that will reach a negative $1.3 billion in June, according to a Monday court opinion of Wal-Mart Stores Inc.’s successful suit against Puerto Rico to end a tax that applied its highest rate on the retailer. The opinion quoted from the commission’s November report, which isn’t public.

Critically Deficient

The commission’s report found that the bank’s “liquidity levels are critically deficient in relation to its weakened financial conditions caused by an elevated debt exposure and obstructed access to capital markets,” the court opinion quoted from the report.

The bank has disputed the findings. Melba Acosta, president of the Government Development Bank, is cited in a footnote in the report as saying the report was ‘obviously written by someone who doesn’t understand the GDB.”

Barbara Morgan, a spokeswoman at SKDKnickerbocker in New York who represents the GDB, didn’t have an immediate comment. Betsy Nazario, a spokeswoman at the GDB in San Juan, didn’t immediately return a phone call and e-mail.


Puerto Rico is negotiating with its creditors to reduce $70 billion of debt through a voluntary debt exchange after the island borrowed for years to paper over budget deficits. About 45 percent of residents live in poverty and the island’s economy has shrunk in the past decade. The House Natural Resources Committee Tuesday made public a discussion draft of a bill that would set up a federal control board to oversee any debt restructuring and review annual budgets.

Last Examination

The bank in November warned that it was at risk of receivership, which would suspend the GDB’s operations and settle its obligations. It owes investors a $422 million bond payment May 1 that Garcia Padilla has said cannot be paid. Puerto Rico and its agencies must pay an additional $2 billion in principal and interest on July 1.

The commission’s last comprehensive exam of the GDB was in 2007, according to the court opinion. Once the commission began conducting its review last year, the bank took more than six months to give “the minimum necessary information to produce” the review, the court opinion quoted from the report.

“For years now, the commonwealth has been running away from the truth about its fiscal health,” Judge Jose Antonio Fuste, wrote in his opinion. “The deep-seated refusal of several administrations to own up to and correct the structural imbalances in our economy has brought us to the point of crisis.”

Michelle Kaske  and Alexander Lopez

Puerto Rico's Government Development Bank Risks Receivership

Comments

Post a Comment

Popular posts from this blog

IMF Executive Board Discusses the First Assessment of Eligible Countries under the Multilateral Debt Relief Initiative

On December 21, 2005 the Executive Board of the International Monetary Fund (IMF) established the list of countries that qualify for debt relief from the Fund under the Multilateral Debt Relief Initiative (MDRI). Debt relief delivery, which could start as soon as January 3, 2005, is now conditional on getting the consents of all the contributors to the Subsidy Account of the Poverty Reduction and Growth Facility (PRGF) Trust, whose contributions help finance the Initiative. The MDRI will deliver debt relief from the Fund to qualifying members countries with an annual per capita income at or below US$380, and to countries above the threshold that have reached the completion point under the Heavily Indebted Poor Countries (HIPC) Initiative. The implementation of the MDRI will reduce the external debt burden of a number of the world's poorest countries and will provide additional resources to help them reach the Millennium Development Goals (MDGs). Background The Executive Board appro...
Read more

Oil’s chaotic collapse deepens; stocks drop worldwide

Image
NEW YORK (AP) — Oil prices crumpled even further Tuesday, and U.S. stocks sank to their worst loss in weeks as worries swept markets worldwide about the economic carnage caused by the coronavirus pandemic. The market’s spotlight was again on oil, where prices have plummeted because very few people are flying or driving, and factories have shut amid widespread stay-at-home orders. Global demand is set to drop to levels last seen in the mid 1990s. At the same time, oil producers can’t slow their production fast enough, and all the extra crude means storage tanks are quickly running out of room. The cost for a barrel of U.S. oil to be delivered in June plunged 43% to $11.57. That’s the part of the market that oil traders are focused on and trading most actively. For oil to be delivered next month, which is when storage tanks could top out, the cost of a barrel stood at $10.01. A day earlier, it fell below zero for the first time, meaning traders paid others to take oil off their hand...
Read more

Mapping Extreme Poverty Around the World A new report from the

Image
A new report from the  World Bank  just landed, finding that a record low of 10% of humanity now live in extreme poverty, down from 11% in 2013. But poverty rates aren’t anywhere close to equal between continents or even countries, as our new series of maps clearly demonstrates. The World Bank provides an in-depth explanation for its methodology, which you can find in Appendix A of the full report  here . We focused on the percentage of people in each country living below what the World Bank defines as extreme poverty, or $1.90/day. We’ll let the researchers defend this definition on their own, but there is one caveat to keep in mind. It can be extraordinarily difficult to collect reliable data from so many countries on a regular basis, and in fact we used the latest year in which numbers were available whenever possible. For example, in some of these maps we compare 2011 figures against 2015. In short, our maps provide the clearest possible apples-to-apples compa...
Read more