Monday, November 29, 2021

Gov’t Reacts to Notice Given to GDB Depositors

By on November 1, 2016

SAN JUAN — Both Treasury Secretary Juan Zaragoza and the Government Development Bank (GDB) said Tuesday that a notice recently issued to municipalities and public entities regarding their deposits being held via executive order at the troubled financial institution is only an “accounting issue.”

According to a written statement issued by the Treasury Department, the letter dated Oct. 18 “is an exercise of accounting assessments and reserves,” as required by generally accepted accounting principles (GAAP). It adds that the effort “does not affect operations or the legal right of public corporations and municipalities to have access to their deposits in the Government Development Bank.”

“As stated by Juan Zaragoza, the letter that was issued by the Treasury Department deals with an accounting matter. Treasury is responsible for the accounting of the central government and therefore has an obligation to provide guidance to commonwealth entities to take into account in their financial statements the accounting treatment they should give all their assets, including their deposits,” said a GDB spokeswoman in a written statement.

Government Development Bank, GDBFor his part, Zaragoza added that “we are talking about possible losses due to risks of uncertainty for which public corporations and municipalities have to make some financial reserves. The letter is a result of inquiries made by such public corporations in the process of preparing their financial statements. We have the obligation to tell them that the strict application of accounting principles will require them to have a reserve on their books.”

As previously reported by Caribbean Business, the GDB’s liquidity — which hovered around $160 million as of late August — has resulted in the financial institution’s inability to currently meet all of its deposits, which are above its current liquidity levels.

Since April, the bank operates under severe cash-outflow restrictions, and has failed since August to completely meet its debt service obligations, after making interest payments for a few months despite the moratorium imposed in May on its debt obligations.

“For about seven months, we have been rationing the [GDB’s] deposits,” said the Treasury secretary, adding that “the bank is stable because the deposits-payment valve was significantly closed, that is, [disbursements] have been done little by little.”

The current lack of liquidity at the GDB requires public entities and municipalities to reserve in their financial statements any funds deposited in the financial institution that aren’t protected under the executive orders that restrict disbursements at the GDB.

Funds in dribs and drabs

Late last August, GDB President & Chairman Alberto Bacó Bagué told Caribbean Business that the bank’s liquidity was about $160 million, as the bank receives funds in dribs and drabs.

With the start of the new fiscal year July 1, the GDB was assigned roughly $120 million in the current government budget, receiving about $11 million each month. Zaragoza confirmed to Caribbean Business that the central government has kept up with the disbursement of these funds to the bank.

Meanwhile, after taking control of revenue sources previously pledged to debt service, one of the executive orders signed last summer to this end provides for the Highway & Transportation Authority to transfer to the GDB any surplus from the funds it currently receives from the petroleum products tax, known as la crudita, once it had met its operational funding needs.

The arrangement between the two public entities allows the HTA to pay down its outstanding debt with the GDB, which amounts to roughly $2 billion, while providing the bank with much-needed additional liquidity.

At the time, Bacó estimated the funds coming from HTA that could be injected into the GDB at about $11 million. However, the exact amount, if any, received by the bank to date from HTA is yet to be known. Caribbean Business has repeatedly requested information from the government about these funds, but efforts have so far been unsuccessful.

“The Government Development Bank is taking the necessary steps to maintain its liquidity. Right now, we maintain a balance between liquidity and priority disbursements, protected by the governor’s executive orders. We are aware that the future of the Bank will be defined by the debt-restructuring road decided by [Promesa’s fiscal control] board,” the rest of the GDB statement reads.

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