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No Write-off on GDB’s Books

By on August 25, 2016

SAN JUAN – The Government Development Bank (GDB) will not take a 40% write-off on roughly $4.4 billion that is owed by the central government and instrumentalities to the ailing bank. At least not while President & Chairman Alberto Bacó Bagué stays at the helm of the GDB.

“I have studied it from a legal perspective—over and over. While I’m [at the bank], and I could be there one day or until Dec. 31, we won’t take the write-off,” said Bacó during an exclusive interview with Caribbean Business.

He argued that the recently enacted Act 74 “only allows, but not requires” the bank to consolidate the targeted debts into a single debt and then restructure it to reflect the write-off.

“It would be an act against Promesa…. It is not a smart move,” Bacó went on to say. Under his purview, the bank would rather wait to consult with the Puerto Rico Oversight, Management & Economic Stability Act, or Promesa’s, fiscal control board as well as with the bank’s creditors.

“If as part of [Puerto Rico’s] broader [debt-] restructuring, the creditors agree and we achieve an agreement over the matter, then it’s ok. But if we read Promesa now, strictly, it is not possible,” Bacó said.

No write-off, no statements?

Bacó told this newspaper his top pressing needs are to have a long-term revitalization plan for the GDB and bring audited statements up-to-date before Dec. 25.

However, in the run-up to release audited statements for fiscal 2014—delivered more than a year past its May 2015 deadline—an agreement between the GDB management and KPMG auditors over a significant write-off on the government’s outstanding debt with the bank was key in overcoming a deadlock over its final release.

How would Bacó achieve two pending audited statements at once after backing off on the write-off?

(Photo by Schöning/ullstein bild via Getty Images)

(Photo by Schöning/ullstein bild via Getty Images)

“The auditors could reserve a [lesser] quantity, but we will see the circumstances from now until December,” he stressed, showing confidence that having in place his sound strategic plan for the GDB and taking a closer look at each debt owed to the bank would do the trick.

“When they went to talk to auditors they had no strategic plan about where the institution was heading,” said the new GDB chief, who has been serving on the bank’s board since 2013, in his second stint. “I will have a strategic plan on how to manage those debts and we can always reach a reserve. But there are various ways to achieve the objectives. I’m not afraid of that.”

Bacó took a veiled shot at those who have “done everything possible” to force the GDB off its rails. “They don’t pay [the bank]. They comment publicly without knowing the bank, saying it should be shut down, that there is no reason to continue with it.”

Doubling down on its strategic plan—which he expects to have ready in about eight weeks—would suggest there are other ways to deal with the massive public debt load sitting on its books, which has hindered the GDB’s capitalization efforts. For instance, small, staggered payments made by the central government and instrumentalities, covering at least some interest, could be achieved, he explained.

“My recommendation is that we address [the write-off] later, after we have a strategic plan, that we take all debt and we analyze it,” Bacó said. “I will prove to them that the institution still has a reason for being.”

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