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Puerto Rico Shuffles Financial Managers

When Luis Fortuño became governor of Puerto Rico in January 2009, he promised to reduce spending, cut the government’s payroll, end structural deficits, and set realistic revenue projections.

For Juan Carlos Batlle, incoming president of the Government Development Bank for Puerto Rico, his priority is to continue to move the administration’s fiscal recovery plan forward.

“The path has already been drawn up … to maintain the fiscal discipline that the government has been doing over the past two years,” Batlle said in a telephone interview.

Batlle, 37, will take the helm of the GDB on March 2. He will be a key economic guide to the Fortuño administration, weighing in on pension reform, economic development, debt issuance, and budgetary matters.

Fortuño is a member of the pro-statehood New Progressive Party. The NPP also controls both chambers of the Legislature.

Batlle is replacing Carlos Garcia, who is leaving the GDB to return to the private sector.

Garcia joined the bank at the beginning of the governor’s term with the intention of helping to implement a fiscal reform plan and steer the commonwealth out of immediate fiscal danger.

The GDB is the central government’s fiscal adviser. It accesses the capital markets for the commonwealth and its independent authorities. 

For the past 14 years, Batlle has been a top executive at Group Santander. He has held the positions of senior vice president and director of Santander’s investment bank, first senior vice president of Banco Santander, and chief executive officer of Santander Asset Management Corp.

Batlle holds a bachelor’s degree in economics from the University of Michigan.

“Juan Carlos knows this bank very well,” Garcia said in a telephone interview. “He has been serving the bank for a long time. I happened to have the pleasure of working with him for many years and he’s going to be an excellent GDB president.”

In addition to Garcia, GDB’s executive vice president for finance, Fernando Batlle — Juan Carlos Batlle’s brother — will leave the bank.

Jose Otero-Freiria, deputy chief of staff for public policy for Fortuño, will replace Fernando Batlle in the position.

Garcia and Fernando Batlle will remain at the GDB until March 30. As part of the transition phase, Garcia will continue as chairman of GDB’s board and Fernando Batlle will serve as special adviser to Garcia.

Like Garcia, Fernando Batlle plans to return to the private sector.

“For the purposes of bondholders and investors, we will be continuing the work that we’re doing and there will be a very excellent team who will be taking the helm in this second half” of the Fortuño administration, Garcia said.

Otero-Freiria has been an adviser to the governor for economic development and finances. He was manager of Procter & Gamble’s finance department in San Juan and director of institutional investment consulting services at UBS Financial Services in the city.

Otero-Freiria has a bachelor’s degree from the Wharton School of Business at the University of Pennsylvania. He holds an MBA from Stanford University and is a certified public accountant.

Top items on Puerto Rico’s agenda are a pension reform initiative and a new general obligation bond issuance — the first for the commonwealth in more than two years.

There also are potential long-term concession agreements for the island’s main toll road, Route 22, and for the Luis Muñoz Marin International Airport in San Juan, among other proposed public-private partnership agreements.

While the administration has been able to maintain Puerto Rico’s low investment-grade ratings and is working to eliminate a $3.2 billion structural deficit by fiscal 2013, the commonwealth still faces severe economic challenges.

One is its retirement system. Puerto Rico’s pension fund will be depleted by fiscal 2019. Its unfunded pension obligation is $17 billion and the retirement system has a paltry funding ratio of 9.8%.

December’s unemployment rate was 15.7% and the island has been in a recession since 2006. Officials expect Puerto Rico will emerge from its nearly five-year downturn this year with modest gross domestic product growth of 0.4% in fiscal 2011.

For the opposition Popular Democratic Party, which supports the island’s commonwealth status, the Fortuño administration’s deep reductions in public employment have hurt the island’s economy.

Angel Matos, spokesman for the House and Senate minority, said the central government needs to provide employment to offset private-sector job losses. Matos pointed to recent job-loss announcements on the island at bookstore retailer Borders, pharmaceutical giant Pfizer, and Reliable Financial Services’ mortgage division.

“Government employment is actually one of the four tires of Puerto Rico’s main economy, and if we are eradicating those positions we are making ourselves less effective because we are taking the air out of one of the tires,” Matos said.

In addition to the management changes at the GDB, the governor this week announced that Juan Carlos Pavia will serve as the director of the Office of Management and Budget.

Pavia has been executive vice president and fiscal agent of the GDB and senior adviser to the bank’s president. He also was assistant adviser to the governor for economic development and finance. In the private sector, Pavia was assistant vice president for asset financing at Westernbank.

He holds a bachelor’s degree in business administration from George Washington University.

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