Good Bank, Bad Bank
The Government Development Bank (GDB) is on life support and there are plenty of detractors—none of them physicians—who want to pull the plug on the ailing institution. What was once the government’s fiscal agent in charge of issuing and managing municipal debt of some 18 different credits, which include one-time sterling general-obligation and tax-backed Senior Sales Tax Financing Corp. bonds, is down to $160 million in liquidity. “Bad bank,” says the chorus of naysayers calling for its liquidation.
The GDB’s enemies will have to face Alberto Bacó Bagué—the Economic Development & Commerce secretary—who after taking the helm of the ring-fenced institution insists that the bank is worth saving. In an exclusive interview with this newspaper, he shared that he is conducting a study that explains the viability of the bank and why it is essential to Puerto Rico’s economy.
Bacó is going to need the study to make his case before the members of the federal fiscal-control board who will be very interested in knowing just how the bank went off the rails and why they should trust the bank’s propensity to provide unfunded loans will change. We can just see it now: the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) board members quoting that Santana classic—“You’ve Got to Change Your Evil Ways.” Bacó will have a tough time decrying questionable practices of an institution because he had been sitting on the GDB’s board of directors.
A best foot forward would be presenting audited statements: those numbers are essential to help him bolster the case to supercharge the bank to contribute to Puerto Rico’s economic development.
If Bacó manages to unveil audited financial statements by Dec. 25, as the GDB president has promised, he will have achieved if nothing else, the restoration of good faith—but not credit.
Puerto Rico’s economy is in a funk of apocalyptic proportions and it will take job creation to put it back on track; without that, there will be no market access. Punto.
So Bacó is now concerned that if the one-time fiscal agent disappears, it will cause enormous problems for many municipalities that will have to resort to private-sector banks for financing. The new tenets of banking in a finance world confined by stress tests will keep municipalities from completing long-term public works. They will not have access to capital, says Bacó. That is one reason to keep the bank. Another is the maintenance of the Puerto Rico Housing Financing Authority, an entity under the GDB’s purview that is responsible for securing financing for social-interest housing. Without the expertise of officials ascribed to that unit, Bacó insists that hundreds of millions of dollars earmarked for social-interest works would be lost.
If it is true that the GDB’s demise would be mortal for Puerto Rico’s economy, how does he convince the bank’s naysayers that the institution be revitalized and not commit the same mistakes again? He believes it can be done with a model similar to the Asian Development Bank, which draws from private-sector expertise and capital to handle investment in works that can help to create jobs.
For the longest time, Puerto Rico was the hottest thing since pan soba’o. Yes, there was a time when you could hear “Extra, extra—read all about it: Puerto Rico offers triple tax-exempt bonds with sterling credit ratings.”
That was a golden opportunity taken for granted by our governments. When Puerto Rico began to lose the more than 40% of the funds in local banks tied to Section 936 and jobs were lost by the tens of thousands, we should have righted the ship.
But we gave and we gave, and received not enough job creation in return. Perhaps we should think about that now as we get set to start anew.