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Puerto Rico Leader Overseeing the Commonwealth's Debt Resigns

The president of the Government Development Bank of Puerto Rico, Javier Ferrer, resigned, posing a new challenge to Gov. Alejandro García Padilla, who must find a qualified replacement as he battles to protect the commonwealth’s investment-grade ratings.

Ferrer, whose resignation is effective Friday, had taken the lead in overseeing and advising on the debt of the Puerto Rico government and public authorities at the bank, which also loaned to the government and the authorities.

“As García Padilla discovered in December, when allegedly several candidates withdrew, finding a qualified and willing GDB president willing to take the job is difficult,” Municipal Market Advisors managing director Robert Donahue wrote. “The position requires a unique blend of technical (capital markets, legal and economic related) expertise but also political independence and bipartisan respect. There are only a handful of truly qualified candidates on the island, of whom many are highly paid in the private sector and to work at the GDB requires a substantial reduction in income.”

García Padilla announced that José Pagán, now executive vice president of the GDB finance department, will be the interim president. Ferrer has held the position since the start of the García Padilla administration in early January, when Pagán also started. Ferrer will become the governor’s consultant in financial affairs.

“Many believe the permanent replacement will be current secretary of the Treasury, Melba Acosta (either resigning for the presidency or assuming both),” Donahue wrote. “But such an appointment is not without controversy. Although Acosta has served ably and is familiar to municipal market participants, her close political affiliation with the governor is a drawback given the necessary level of independence, especially as Puerto Rico must end its long-standing use of GDB’s balance sheet for 'in-house’ deficit financing.”

Acosta had no comment, a spokeswoman said.

“Ferrer had a strong grasp on the fiscal challenges facing Puerto Rico,” said Janney Capital Markets managing director Alan Schankel.  “It is difficult to overstate the accomplishments of his short tenure. I hope the governor is able to find a replacement who is in the same league.”

García Padilla credited Ferrer with heading off rating downgrades in the first six months of the administration.

“Javier Ferrer came to resolve and attend to the critical fiscal situation in which we found the bank and public finances,” García Padilla said. “He’s accomplished the mission of avoiding further bond downgrades and the bankruptcy of the Government Development Bank. Both actions seemed imminent with the condition we found the GDB in January. For this, both the Puerto Rico people and I are very grateful.”

Ferrer said that there “have been months of hard work dedicated to addressing complex issues of the country’s finances” and added that, “Much has been achieved in a short time and we’ve stabilized our fiscal situation thanks to the whole [GDB] team and the governor’s leadership.”

He credited García Padilla for “meeting fiscal challenges head on, with sensitivity, protecting the less fortunate.”

Pagán graduated from a Catholic high school in Puerto Rico in 1975. Since then he has earned a Bachelor of Arts from Yale University, a Master of Business Administration from New York University and a master's in computer science from Polytechnic University of Puerto Rico.

His professional background is primarily in finance and, to a lesser degree, business management. Before starting work for the GDB in January, Pagán had senior positions at the GDB in 1992 and from 2001 to 2002.

In his role since January, Pagán has reviewed swap transactions, ratings presentations, guarantees for private loans and financial transactions for public corporations and municipal bonds. He also assisted, advised and represented Ferrer with various public agencies, municipalities and corporations. He assisted with audits of agencies, corporations and municipalities.

Additionally, in the ’80s and ’90s he worked with Puerto Rico public finances in four years with Credit Suisse and six years with Salomon Smith Barney.

Ferrer has not given a reason for his departure.

“Newspapers in Puerto Rico are reporting that, when Ferrer agreed to take the job in December last year, he made it clear he would only be in office a few months to complete fiscal year 2013 and commence the fiscal year 2014 budget year,” Donahue wrote. “It is generally believed that tensions between the GDB and political leaders with the García Padilla administration factored into the decision, especially in May and June as budget and tax measures languished. There also appeared to be a philosophical difference between Ferrer and the administration’s efforts to revive the economy by attracting high net worth individuals, pharmaceutical companies and other 'high-tech’ firms with tax exemptions.”

Samira Shalabi contributed to this story.

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