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Puerto Rico's New Leaders Promise Rapid Action

The economic leadership of Puerto Rico’s incoming administration promised Monday to hit the ground running to address the island’s financial problems.

Governor-elect Alejandro García Padilla will be sworn in on January 2. “We fully recognize that timely action is required,” García Padilla said.

Referring to Moody’s Investors Service downgrade of Puerto Rico’s general obligation debt to Baa3 on Thursday, García Padilla said, “Moody’s actions further signal the need for fiscal discipline at the central government and in our public corporations…. My administration will focus on job creation and economic development initiatives, meaningful pension reforms, and implementing prudent austerity measures.”

On December 11 García Padilla named David Chafey, Jr. to become the new chairman of the Government Development Bank of Puerto Rico. The bank issues most of the government’s debt. On Monday Chafey said he had been working with García Padilla on the new the transition for three weeks.

García Padilla also named Javier Ferrer to be the bank’s new president. Ferrer said he was working with the current bank team “so that when we get in office in January, we can hit the ground running…. It is time for decisive action.”

Both Chafey and Ferrer will take office on January 2.

Chafey said the government’s immediate challenges are pension reform, liquidity, and better public corporation performance. The government expects to come out with a plan for pension reform first, early in the coming year, he said.

“We’re looking at all potential options to address pension reform,” Ferrer said. He said the selling of pension obligation bonds is not his preferred route.

In fiscal 2010 the commonwealth’s government had a general fund deficit of $3.1 billion, or 40% of its revenues. At the start of the current fiscal year, the commonwealth’s government was projecting a general fund deficit of $330 million or 3.8% of revenues. However, the government recently cut its projections for economic growth for fiscal 2013 to 0.6% from 1.1%. Observers now believe that the projection of a $330 million deficit may prove optimistic.

As for how to handle the commonwealth’s general fund deficit, Ferrer said the administration was working on a plan.

There has to be a balance between balancing the budget and jump-starting Puerto Rico’s economy, he said.

The administration should be clearer about its budget plans in a month, Chafey said.

“We are recruiting top talent for the bank,” Ferrer said.

“Our team is seasoned, with significant experience in both public and private sectors,” said incoming Treasury secretary Melba Acosta. “I look forward to simplifying the tax code, increasing tax compliance and identifying measures to increase revenues in order to tackle the recurring structural deficit.”

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