Melba Acosta Febo today resigned from her post as President of the Government Development Bank. Her departure from the bank will be effective on July 31. Acosta Febo was the Secretary of the Treasury at the beginning of Governor Alejandro García Padilla’s term. Her closest advisors, Jorge Clivilles and Gerard Hill, also resigned. Acosta Febo has been a key member of the Governor’s fiscal team since the beginning of this Administration. García Padilla praised Acosta Febo for her role in forging key initiatives such as tax reform, the bond payment moratorium law, the KPMG tax policy study, the Anne Krueger Report, the fiscal adjustment plan, and other issues. Apparently Acosta Febo had wanted to resign for some time now but decided to wait until the GDB’s audited financial report was made public, which was released yesterday.
How long will fiscal control board be in place? It’s anybody’s guess
The financial control board established under the recently enacted PROMESA law is required to be in place until Puerto Rico achieves four consecutive balanced budgets (the budgets would have to remain in balance for the duration of the fiscal year), and the Island has access to short- and long-term credit markets. Since this year’s budget has already been enacted, the process of meeting these legislative requirements could theoretically start in FY18. This would mean that, at minimum, the board would be in place for 5 years. Two previous iterations of financial control boards, imposed on the District of Columbia, lasted for 6 years. Former Governor Luis Fortuño, whose administration issued $16 billion in bonds, says that a 10-year time period is more likely. The President has until mid-September to appoint members to the board.
GDB insolvency dates back to FY14
The Government Development Bank (GDB) has been in a precarious fiscal situation for far longer than previously known. According to its FY14 financial report, the bank has negative assets of up to $316 million. The main issue with the bank’s liquidity is that its largest debtors are also government agencies that have not paid back billions in loans. The Highway and Transportation Authority (HTA) alone owes more than $2 billion in loans to the bank. Municipalities also owe the bank more than $3 billion. The Government is supposed to repay the loans via legislative appropriations, but only $202 million has been repaid in the past 3 years. The insolvency of the bank caused it to miss $422 million in GDB note payments. The bank reached an agreement with its creditors to continue to pay interest and postpone close to $900 million in other debt payments.
The bank’s liquidity crisis provoked the government to create the Fiscal Agency and Financial Advisory Authority, which in essence supplants the GDB as the government’s lead negotiator and fiscal agent. The Authority is headed by Secretary of State Víctor Suárez, who previously served as the Governor’s Chief of Staff and Director of the Ports Authority prior to that.
Washington Watch is published weekly when Congress is in session. Published monthly during extended recess or adjournment.