Treasury Secretary Testifies in House Hearing
SAN JUAN – Treasury Secretary Juan Zaragoza said Tuesday he has been evaluating the day-to-day operations of the Government Development Bank (GDB) and has no immediate plans to ask the governor to put the institution under receivership because it has complied with the required liquidity levels.
Zaragoza, who said he is a member of the GDB’s board and has the most current information on its finances, added he expects the audited financial statements on the commonwealth government’s finances to come out in April and acknowledged that delays in the submission of the documents “is an uncomfortable situation.”
“I meet with the people of KPMG twice a week…. All we have left are certain aspects in the audits of the GDB and certain points in the retirement systems of public workers and the courts,” he said.
The Treasury secretary disputed testimony given in the Wal-Mart Puerto Rico civil case by the Financial Institutions Commissioner’s Office (OCIF by its Spanish acronym), which stated the GDB is running out of liquidity. Zaragoza said OCIF wrote to him in November about the GDB’s financial problem but that he found errors in OCIF’s analysis of the bank’s finances and revenue levels.
“[OCIF] said in November that the bank will be left with minus $700 million, but it ended up positive $800 million,” Zaragoza said.
Zaragoza noted that the GDB’s board is taking measures to avoid running out of liquidity such as selling loan portfolios. “The bank has always complied with its liquidity level, which is 20% of the demand on deposits,” he said.
According to the law, if the Treasury secretary determines that the GDB will become insolvent, he has to notify the governor and request the court that the bank go into receivership.
“The governor, however, has other options, he can put the bank on some other form of receivership that is not under the court or seek a debt moratorium,” Zaragoza said during a public hearing held by the House Treasury Committee.
Zaragoza said that May 1 is a crucial date in terms of liquidity, adding that the bank has been negotiating with bondholders and cooperatives, or credit unions, to avoid going into default.
The secretary said another crucial debt payment will take place in July, when general obligation bonds (GOs) are due, because it will be an uphill battle to meet the debt service, estimated at $700 million.
“That is why we want [the U.S.] Congress to give us the tools to deal with the problem,” he said.
Zaragoza said he will oppose the imposition of a financial oversight and management board that has full control of the government, but supports the proposed debt restructuring before Congress.
“One thing is the board and another is the debt restructuring. If one comes as a consequence of the other is another thing. Regarding the board, I have to see how it is configured, but if it is too invasive, I will oppose it. And by that I mean whether the board crosses legislative powers such as approving the budget,” he said.
On the other hand, Zaragoza said he expects the value-added tax to go into effect in June and did not have plans to postpone it further. He said it is up to the Legislature to postpone it. “My only discretion was to postpone it from April to June, and I exercised it,” he said.
He explained that the difference between the projected and real revenue is around $508 million but said he is $25 million below the adjusted budget of $9.2 billion. “If the wind blows accordingly…we expect to be short $25 million [in March],” he said.
Zaragoza also opposed a package of measures during the Treasury Committee hearing that, in essence, would repeal the value-added tax. “I am not going to support something that is going to unbalance something that is already unbalanced,” he said