Gov’t Officials: No Imminent Shutdown of GDB
SAN JUAN — On Friday afternoon, Gov. Alejandro García Padilla once again denied reports of an imminent shutdown or privatization of the Government Development Bank (GDB) and said his administration is “evaluating all the actions necessary to avoid putting the bank on receivership.”
The governor echoed comments made earlier in the day by GDB President & Chairwoman Melba Acosta, who said that of all the measures being evaluated, none entail dismissing public employees.
“In the legal evaluations being conducted, shutting down the bank is not contemplated. In fact, what we are evaluating, from a legal perspective, is to not close the bank and avoid receivership,” Chief of Staff Grace Santana told reporters in La Fortaleza on Friday.
Both García Padilla and Acosta stressed that talks with the bank’s creditors have been going on for months in an effort to reach such relief measures as a forbearance on its next debt payments while restructuring talks take place over the GDB’s debt. The bank owes roughly $4 billion to creditors and faces a $422.8 million payment May 2, for which government officials have said there is not enough cash to pay in full. The governor said he was hopeful the bank could achieve forbearance from its creditors ahead of the May payment.
Yet, as reported by Caribbean Business, the administration could be on the brink of presenting legislation that would seek a moratorium in an effort to deal with the more than $2 billion in debt payments due this summer, including the GDB’s, sources said. La Fortaleza had intended to present the moratorium legislation Friday but plans were postponed, sources added. Nevertheless, plans still call for presenting the measure soon.
As part of the legislation being worked on by the administration, one measure to help the GDB would entail splitting it up into good/bad entities, thus avoiding a receivership process and a potentially damaging blow to Puerto Rico government operations and the economy. The bank would seek “to protect depositors and access to its asset value, while figuring out some restructuring of the third-party creditor debt,” said one government source with knowledge of the matter. “Traditionally, the FDIC does a good bank/bad bank act, moves assets and deposits into a good bank, then leaves behind the third-party debt.”
When asked by CB about this mechanism, García Padilla said: “Caribbean Business’ story contradicts that the bank will be closed because it says we are evaluating mechanisms to protect it. The response to that is we are evaluating all the possible measures. All of them means all of them, to protect the country, rather than shut down the bank.”
For her part, Acosta stated earlier Friday that the government is “considering certain additional actions such as declaring a temporary moratorium on payment, if necessary, and amendments to the organic law of the GDB, to address this situation.” She added several initiatives are being worked on at the same time, while no final decision had been made by the time the GDB released her statement.
Meanwhile, sources have said details on the legislation being worked on are still being fine-tuned but, in general, it would broadly cover the island’s debt and most likely include a mechanism to deal with the financially battered GDB.
When asked Friday by CB when his administration would put forth a measure to tackle the bank’s situation, García Padilla said, “When it is right and benefits the country.” He added he would need to discuss any measure that requires legislation with majority leaders in both legislative chambers.
It remains to be seen if there would be enough support among Puerto Rico lawmakers to make way for a moratorium measure and provide relief to the bank in a timely manner.
“If it has the votes, we would present it,” the governor noted on Friday. When asked by CB if he had spoken with lawmakers about the matter, García Padilla said they have talked “about the various alternatives we are evaluating, if not all of them.”
CB then asked if there is draft legislation ready to this effect, to which the governor replied, “there are various drafts for different alternatives.”
On Friday, several government officials, including Acosta, Treasury Secretary Juan Zaragoza, Justice Secretary César Miranda and Chief of Staff Grace Santana, met in La Fortaleza, although details about the meeting are still unknown.
The governor stressed during his press conference that the matter is serious and that the false rumors circulating during the past two days “affect Puerto Rico’s possibilities of success to tackle its crisis.”
(For more information on the bank’s situation see CB’s Cover Story this week.)