The Government Development Bank for Puerto Rico, with about $3.8 billion of debt outstanding, may fail and it’s possible that the island’s cities and public corporations won’t get all their deposits back, said Puerto Rico Secretary of the Treasury Juan Zaragoza.
In a response to Zaragoza earlier this week, Puerto Rico Mayors Federation executive director Reinaldo Paniagua said the cities had more than $300 million in deposits at the GDB. The bank’s possible inability to return all deposits also jeopardizes loans for projects already underway, he told the El Nuevo Día news website. “The impact [of a loss of deposits] would be dramatic.”
Zaragoza sent a formal letter about the matter to municipal governments and public corporations on Oct. 18 and then followed up with a press release on Tuesday.
GDB managers have “substantial doubt about the ability of the GDB to continue as a going concern,” Zaragoza said in the letter.
Given the GDB’s weakened state, “the amount of recovery of an investment in deposits or similar financial instruments at the GDB is uncertain,” Zaragoza continued.
Municipalities and public corporations should follow Government Accounting Standards Board statement 62 and calculate what portion of their deposits should be considered impaired, Zaragoza said.
As of about July 1 the municipalities owed $1.8 billion in bonds and loans, according to the Puerto Rico government.
The University of Puerto Rico had about $100 million in deposits at the GDB. As of about July 1 the university owed about $496 million in bonds and loans to non-Puerto Rico government entities, according to the Puerto Rico government.
In April the GDB’s level of liquidity was declining and Puerto Rico’s government instituted a measure to restrict withdrawals to no more than $10 million per week and for essential purposes only. In July the GDB reduced the withdrawal allowed to no more than $3 million per week.
In his press release, Zaragoza said that the bank is “stable because the valve of paying deposits in significantly closed.” He said that Puerto Rico law required him to advise government agencies and public corporations about the applicability of accounting standards to them.
