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Puerto Rico's Bank President Says Goodbye

DEC 7, 2012 1:58pm ET
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After nearly two years of working to move Puerto Rico’s struggling finances in the right direction, one of the commonwealth’s financial leaders is stepping down at the end of the year.

Juan Carlos Batlle was appointed by Gov. Luis Fortuño as president of the Government Development Bank of Puerto Rico in February of 2011. His appointment ends on Dec.. 31.

“There has never been a dull moment during these two years,” Batlle said of his experience. “It’s been quite a journey.”

As the president of the bank that accesses the capital markets and serves as fiscal advisor to Puerto Rico and its many public authorities, Batlle’s job is a “medley of finance, government, and politics,” he said.

Some of the tax-exempt issuers that the GDB serves include Puerto Rico’s Aqueduct and Sewer Authority, Electric Power Authority, Highways & Transportation Authority, and Sales Tax Financing Corporation.

In addition to running the bank, Batlle is a member of 16 different boards that meet at least once a month, he manages relationships with politicians from Puerto Rico’s 78 municipalities, and he maintains communications with the private sector.

“I’ve been lucky enough to have had inherited when I came in a very professional and competent team of people who are running this area and I think that has made my job a lot easier,” Batlle said.

The president also tends to have the ear of the governor, providing key economic, budget and fiscal advice. Together with the Office of Management and Budget and the Secretary of Treasury, Batlle has worked with Fortuño on developing Puerto Rico’s budget, meeting revenue projections four years in a row and reducing the island’s deficit.

“We’ve made our targets and we feel very proud of that. We’ve had to make tough Dec.isions with the information that we had on hand,” Batlle said.

“I think we have been very successful in communicating to the markets and the rating agencies what our plans were, and we’ve stuck to those plans.”

A New Governor

The next president, who has not yet been appointed, will work closely with the new governor, Alejandro García Padilla, who won over Fortuño in the November election by a very slim margin. Padilla will be sworn in on Jan. 2.

The election of a new governor has widely been received with concern from the investing community. Fortuño and his administration had spearheaded a number of fiscal reforms that have put the commonwealth on the right track toward financial recovery, but the new governor’s plans are, for the most part, uncertain.

Standard & Poor’s has said that the commonwealth’s current BBB rating is based on the assumption that Puerto Rico officials will remain committed to the maintenance of fiscal discipline and to the adoption of comprehensive fiscal measures, particularly related to the pension system.

Other analysts have called the new governor an “unknown,” saying that investors will likely take a “wait and see” attitude on Puerto Rico bonds.

Batlle believes that the new governor will continue moving Puerto Rico in the right direction, and points to some of the appointments of “very competent people” that he has already made.

Earlier this month, Padilla said he would appoint Alberto Baco Bague, a lawyer and former chief executive officer of Marvel International and Bohio International, as secretary of Economic Development and Trade. He also announced that Antonio Medina, previously chief financial officer of a subsidiary of pharmaceutical company Merck, will head the Economic Development Company.

“I’m very optimistic about what the future holds. It’s going to be tough and rough, but I think we’ll have the people in place to make things move forward and keep moving in the right direction,” Batlle said.

“This is not about one political party or the other. We have serious issues ahead and we need to work together,” Batlle said, adding that he’s more than willing to help from the outside.

Fortuño, with whom Batlle shares many of his views and policies, is a Republican and the president of Puerto Rico’s New Progressive Party, which advocates for statehood. Padilla is president of the Popular Democratic Party of Puerto Rico, which supports the commonwealth’s current political status.

Words for the Future

From his experience at the GDB, Batlle has plenty of advice to give to the next president. First and foremost, he would advise them to follow through with the already implemented fiscal policies and take them to the next level.

“You really have to build on what we have been able to do in these past years. We have done it at times better than others, but I think we established a good investor outreach program,” Battle said, adding that an open line of communication with the markets is necessary.

“One of the most important things that I would tell the incoming president is that you cannot afford to lose market access. That would be a huge challenge to have to recover from.”

Despite the well-known and numerous challenges that Puerto Rico faces, the commonwealth experienced much success accessing the markets in the past year, with most transactions heavily oversubscribed. Puerto Rico’s issuers went to market nine times last year with about $7.5 billion of total debt.

Investor Confidence

In February, the GDB took the Aqueduct and Sewer Authority to market for the first time since 2008 with $2.7 billion of revenue bonds. The next month, Puerto Rico came to market with an expected $1.5 billion of bonds, but ended up selling $2.3 billion due to strong demand. Orders for that deal had exceeded $3 billion.

“Some may say it was just because of the yields, but I think it had a lot to do with the confidence that the markets had in Governor Fortuño’s achievements during his term,” Batlle said.

Under his leadership, Puerto Rico has taken on several public-private partnership projects, closing its first toll read deal in 2011. The commonwealth received $1.4 billion in private investments to upgrade two of its major toll roads.

Puerto Rico is also close to completing the first U.S. airport P3, where private investments will go toward improving San Juan’s Luis Muñoz International Airport over a 40-year period.

Batlle said that, if it closes, the airport P3 would probably be his greatest achievement during his tenure.

The Federal Aviation Administration still needs to approve the partnership before it can go forward, but Batlle said he’d be leaving knowing his team took it 90% of the way.

No Time to Wait

“If somebody asked me what keeps me up at night, I would say pensions, pensions, pensions,” Batlle said, adding that it is the biggest immediate challenge for Puerto Rico.

“I can probably list five or six big ticket items that I think need to be taken care of, but some of them can wait,” he said. “Pension systems need to be tackled during the first quarter of 2013. I don’t think there’s time to wait anymore.”

Puerto Rico’s pension funds are perilously low on cash. As of June 30, 2011 the Employees Retirement System, which provides pension and other benefits to the commonwealth’s retired employees, had a funded ratio of 6.85%, with an unfunded accrued actuarial liability of $23.7 billion.

Standard & Poor’s has given the ERS’s pension funding bonds a negative outlook based on the ability of the pension system’s participants to continue making contributions. The bonds are rated BBB-minus.

Moody’s rates the bonds at Baa3 and Fitch at BBB-plus.

Batlle spent a lot of time during his tenure looking at different studies conducted by independent groups on the pension system to figure out the best way to permanently fix the pension situation. He was unable to see any solution through, but has began briefing the new adminstration on their findings.

Moving On

After his appointment ends, Batlle plans to spend some quality time with his family and return to the private sector.

Before he was appointed president at the GDB, he served as one of Santander Group’s top executives for 14 years. He initially served as senior vice president and director of the Group’s investment bank. He later served as first senior vice president of Banco Santander, president and chief executive officer of Santander Asset Management Corporation and managing director of Santander Securities Corporation.

Batlle earned his bachelor’s degree in economics at the University of Michigan.

The outgoing president of the GDB said that even with the tough situations that he has gone through in the position — from the public exposure to criticism from the press to the hard Dec.isions — he would not have done anything differently.

“Would I do it again? It would depend on the circumstances and who the governor is,” Batlle said.

“There’s always a right time for everything and I think my time was now.”

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