Governor-Elect Ricardo Rossell- signaled he may shut down banking operations at the Government Development Bank for Puerto Rico, which provides financial backing to the island's municipalities and has $3.8 billion of debt outstanding.
Rossell- on Wednesday indicated that he would continue a policy under which the bank has stopped taking deposits and limited withdrawals and that he may move toward shutting down the banking operations altogether, according to the El Vocero news web site.
Shutting down the operations would hurt the finances of Puerto Rico's municipalities, said Arnaldo Cruz, co-founder of Puerto Rico's Center for Integrity and Public Policy. It would also put the GDB's payment of its debt into question.
Many Puerto Rican municipal governments are struggling financially, Cruz said. Some are having a hard time making payroll. One of Puerto Rico's largest cities, Toa Baja, shut down operations in November when the government ran out of money.
A sliver of Puerto Rico's sales tax revenue is allotted to the municipalities. The Puerto Rico Treasury passes it to the GDB. The GDB uses this money generally as collateral for its loans to the municipalities.
In addition, the Puerto Rico Municipal Revenue Collection Center (CRIM for its Spanish acronym) collects Puerto Rico's property taxes that belong to the municipalities. Until recently, CRIM has deposited a portion of this money at the GDB. With the GDB's growing financial problems CRIM has been depositing a portion of this portion at private banks, Cruz said. CRIM has continued to deposit a small portion at the GDB, again to serve as collateral for GDB loans to the municipalities.
The loss of interest is hurting municipal finances, Cruz said.
The GDB owes much of its debt to Puerto Rico residents and Puerto Rico's credit unions.
Rossell- and his financial team are considering various ways of dealing with the banking operations at the GDB, according to El Vocero.
In a hypothetical failure of GDB's bank, a municipality that owed it $20 million and had $10 million in deposits at the bank, might then owe the central government $10 million, Cruz said.
