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Witnesses provide varying views about government liquidity

By on September 23, 2016

SAN JUAN – The second day of U.S. District Court hearings on four consolidated lawsuits from plaintiffs seeking relief from the stay established by Promesa, produced two conflicting testimonies.

The plaintiffs argued that they should get relief because their claims aren’t about liability; they are challenging the constitutionality of the Puerto Rico Emergency Moratorium and Financial Rehabilitation Act.

Economist Carlos Colón de Armas, the expert witness for the Dionisio Trigo group of bondholders, testified that, in his opinion, the government has made the conscious decision to renege on its debt commitments when it could actually pay these.

According to Colón de Armas, the problem is that the government isn’t putting forth its best effort and has failed to reduce expenses. To operate, the government is taking money destined to pay debt and using it to pay for services.   

Colón de Armas spoke about the financial condition of the Government Development Bank (GDB) and the Public Finance Corp. (PFC) around the time the Moratorium Act was approved. He talked about what he called “unilateral actions” taken after the approval of the Moratorium Act that depleted GDB and PFC assets, drastically affecting their liquidity and rendering them essentially unable to meet their scheduled payments.

Meanwhile, Assistant Treasury Secretary Yaimé Rullán Cabrera testified that the Moratorium Act was needed because it has provided an orderly structure for the central government and its agencies to make payments to keep essential services while at the same time attempt to restructure the debt. She described the government’s liquidity as delicate and developments, such as the current power outage, have made matters worse.

She noted that after the hearing, she has to go to Banco Popular, where the government accounts are kept, to authorize payments to police officers because of an overdraft in the Police Department’s account.

The two expert witnesses spoke at a hearing in U.S. District Court in which Judge Francisco Besosa has to decide whether lawsuits filed by U.S. Bank Trust, Brigade Leveraged Capital Structures Fund Ltd., National Public Finance Guarantee Corp. and the Dionisio Trigo group should be granted relief from the stay imposed by Promesa, which expires in six months.

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