[Column] The Board’s Feigned Attempt at Transparency
The latest announcement that the Board has hired Duff & Phelps, LLC to conduct an “analysis” of the recently announced Government bank accounts is a total whitewashing of its complicity and knowledge of the billions found in the Commonwealth government’s secret bank accounts.
The Commonwealth revealed its 800 or so previously undisclosed bank accounts in December. These contained $6.875 billion and both the Board and the Commonwealth said at the time they would hire companies to determine what amounts, if any, would be available for use and not already earmarked.
However, the hiring of Duff & Phelps is one big circus. In early January, the Wall Street Journal reported that the Board was aware of these accounts since July 2017. I reported about this development in my blog with a link to the internal Rosselló Government log that documents the detailed conversations between the Board and the Governor’s team.
To date, the Board has not denied the accuracy the Wall Street Journal’s article or on my blog; rather, they are simply whitewashing this with the hiring of the forensic audit team. They’re doing this for good reason: The Board told Judge Swain in the summer of 2017 that the Commonwealth’s finances were so bad that it would have to borrow from the Sales Tax Financing Corp. (COFINA) by November 2017. Appearing before Congress last November, Executive Director Natalie Jaresko testified that Puerto Rico needed $3.6 billion before the end of the year and between $13-$21 billion over the next two years.
To add insult to injury, sources in Washington say that José Carrión has told members of Congress that the Board was kept in the dark over the secret accounts by none other than Natalie Jaresko. If this is true, the Board should immediately fire Jaresko and her staff. What’s more likely to be the case is this is nothing more than Carrión and his fellow Board members looking for a scapegoat.
The Board’s sheer obfuscation and disregard for transparency has had implications in Court, with the White House and with creditors too. FEMA and U.S. Treasury, citing the discovery of the secret bank accounts and a strong balance sheet of the Commonwealth, declined to provide the Commonwealth with access to the Community Disaster Loans, so far.
Furthermore, the release of the details of the secret bank accounts by the Commonwealth coincided with a decision by Judge Swain under Bankruptcy Rule 2004 to force the Board to release some of their data used in the development of their fiscal plan.
Now, as the Board rushes towards the February 23 deadline for the next set of fiscal plans, we should keep a watchful eye on their revisions. To date, the Commonwealth and the Board have refused to make public any of the back-up data and information they have used in the development of their respective fiscal plan citing. Bondholders continue to file motions seeking discovery on the data upon which fiscal plans are based, reflecting their lack of trust in the Board or in the Commonwealth.
Further, will the Commonwealth and Board take into account the federal monies, including the $1.5 billion from Housing and Urban Development as well as support new monies for the Puerto Rico Electric Power Authority (PREPA) and Medicaid monies following the 2018 Budget Agreement in Congress? I am sure they will not.
The Dalai Lama once said, “A lack of transparency results in distrust and a deep sense of insecurity.” This adage couldn’t be truer in Puerto Rico. It’s no secret that this has never been a place where transparency was valued by leaders. Congress found this to be true. PROMESA specifically states that a “lack of financial transparency” contributed to the fiscal emergency and default on debt that was the very reason the colonial Board was created. They’ve failed to bring transparency to the Commonwealth and have done nothing to promote transparency within their own body.
This is a fork in the road for the Board. The PREPA sale looms large and transparency is a must. If the Board fails to be truly transparent in its next fiscal plan, it’s going to perpetuate the back and forth that dominated this debate so far. Sadly, if that continues to be the case, we will make no meaningful progress towards financial or disaster recovery.
— John Mudd is an attorney and legal analyst in Puerto Rico with over 30 years of experience. He is admitted in Puerto Rico, the U.S. District Court for Puerto Rico and the First and Fourth Circuit Courts of Appeals. For more than three years, he has been analyzing the possibility of a control board for Puerto Rico. You can follow him on Twitter @muddlaw and on his blog www.johnmuddlaw.com.
–The views expressed in the Opinion section are the columnists’ own and not necessarily the view of Caribbean Business.