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Zaragoza: Fiscal 2014 Audited Statements to Be Released by End of June

By on May 30, 2016

SAN JUAN — Puerto Rico’s Government Development Bank (GDB) is closing in on a deal to write off about 40% of the more than $5 billion owed by the central government to the troubled bank, GDB President & Chairwoman Melba Acosta stated on Monday.

With this move, the Alejandro García Padilla administration expects to pave the way for the delivery of the commonwealth’s audited financial statements for fiscal year 2014, which were due over a year ago and have yet to be released amid numerous setbacks and missed release dates.

On Monday, Treasury Secretary Juan Zaragoza said that the long-awaited document should be finally delivered by the end of June.

As of today, two commonwealth components have yet to finish their auditing processes, namely the GDB and the island’s largest retirement system, he acknowledged. Without the completion of these, independent auditors KPMG can’t sign off on the audited statements.

Zaragoza expects the central government employees’ retirement system to finish its pending process this week, while the bank’s statements would be ready by mid-June.

Meanwhile, the GDB chief said Monday that after talks with KPMG, a deal has been reached “to establish a loss reserve of approximately 40% for public loans.” Moreover, legislation is expected to be filed soon by the administration to materialize the write-off.

“The decision to write off 40% [of the debt owed to the GDB by the central government and instrumentalities] will help us to release soon the audited financial statements [for fiscal 2014],” Acosta further stated while participating in the House’s public hearing over the island’s budget for the next fiscal year, which begins July 1.

As previously reported by Caribbean Business, uncertainty clouding the government’s ability to repay what it owes to the GDB has generated debate between the commonwealth and its independent auditors, thus delaying the overall auditing process.

The central government and its instrumentalities have failed to repay for years the loans the GDB has provided to them. This in turn has led the bank to the precarious financial position it finds itself in today, government officials have admitted.

GDB President & Chairwoman Melba Acosta

GDB President & Chairwoman Melba Acosta

“If the bank fails to get paid for its loans, which would give liquidity to the GDB, unfortunately we don’t see a future for the institution, and the governor should consider appointing a receiver to liquidate the bank, with the implications this would have on local creditors, including credit unions,” Acosta warned in her testimony, noting that the bank has only $238 million in liquidity as of today. She further noted that half of its roughly $4 billion debt is held by local creditors, which prompted the bank to pay $22 million in interest due at the beginning of this month. Nevertheless, the bank defaulted on about $370 million also due May 2.  

The commonwealth’s recently enacted moratorium law establishes a new receivership process for both the GDB and the Economic Development Bank, providing for a more flexible mechanism if the governor decides to make use of it. Moreover, a new agency took over the GDB’s fiscal agent duties, leaving it only with its banking role.

While uncertainty remains over its future as an institution, La Fortaleza is recommending a $35 million budget for the GDB’s operations, including payroll, during the next fiscal year.

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