Mayor Pulled Caguas Funds from GDB
SAN JUAN – Caguas Mayor William Miranda Torres said his municipality withdrew about a million dollars in sales and use tax revenue and in Special Additional Tax (CAE by its Spanish initials) revenue from the Government Development Bank (GDB) last week amid reports about its imminent insolvency.
Miranda Torres said he began taking steps eight months ago to move municipal funds to private financial institutions, but completed the process last week. He also confirmed that many other mayors have also taken funds out of the GDB.
“I have a group of advisers and sit with them once a week…. We saw this coming possibly over a year ago,” he said, adding that the money is used by the town to collect trash and provide other essential services.
Miranda Torres said towns must form alliances to be able to provide services amid the fiscal crisis and rejected their consolidation as has been proposed. He also said the government should be smaller.
He said Caguas does not have loans with the GDB, but has borrowed money from private banks, which had been deposited in the GDB.
As first reported by Caribbean Business (March 31), the Alejandro García Padilla administration is about to introduce a bill that would deal with the financially battered GDB and the more than $2 billion in debt payments due this summer, Caribbean Business sources said.
The bombshell legislation would cover the island’s debt broadly and include a mechanism to deal with the GDB, which does not have enough cash to pay its due payment in full. Sources added it remains to be seen if there will be enough support among Puerto Rico lawmakers to make way for La Fortaleza’s measure and establish the mechanism needed to provide relief to the bank.
The administration is leaning toward splitting the GDB into good/bad entities, “an FDIC-like [Federal Deposit Insurance Corp.] approach,” with the government bank seeking “to protect depositors and access to its asset value, while figuring out some restructuring of the third-party creditor debt,” a government source with knowledge of the matter said. “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.”
This mechanism would protect the bank’s employees and avoid the ripple effects that putting the GDB in receivership would have on the Puerto Rico economy and government operations.
“The bank has to reinvent itself,” the mayor said.
Luis Valentín contributed to this report.