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The Department of Hacienda (Treasury) will have staff on detail in each one of the central Government’s main agencies to, in a kind of receivership, review invoices, reconcile debts, and nullify contracts, in order to reduce contracting in the agencies and generate additional savings to the ones already projected by the Government.

Likewise, for the foreseeable future, Hacienda will be executing an action plan that will delay the payment of any contracts not considered essential to operate the Government and provide direct services to citizens, according to Hacienda Secretary Raúl Maldonado in an interview with El Nuevo Día.

The first goal is to avoid overdrawing on the Government’s accounts. The second is to generate a series of savings to stabilize the cash flow and avoid implementing two of the amendments proposed by the Oversight Board (OB) last Monday: reducing the working hours for public employees, and eliminating the Christmas bonus.

“We’re making changes, and I think we can comply with what the Board is requesting,” said Maldonado.

The Board is imposing two basic requirements: the first is to establish a $200-million reserve, separate from the General Fund; the second is to generate savings of $285 million in the General Fund to compensate for the cash projections that put the figures in the red for the first and second quarters of next fiscal year, which begins in July.

“Right now, we’re cutting expenses. We’re being careful with the disbursements we’re making to agencies. When we get money, first we make payroll, then we pay whatever gets reimbursements from the federal government, and then we pay the direct service contracts in the areas of health, education, and the Police. Consultants and other contractors are placed on a schedule of payments that are issued as the cash flow allows,” said Maldonado.

This model has allowed setting aside at least one million dollars per day to supply an emergency fund. This money will be used to provision the fund requested by the OB.

“We have $80 million in that fund already,” the official added.

And the rest of the money you need? we asked.

“We had already issued an executive order to stop all disbursements for expenses from previous years. We estimate that this will save us $625 million in the following months (around six months). This was one of the biggest mistakes made by previous administrations: multi-annual allocations that weren’t budgeted into the subsequent years. Hacienda was getting payment requests from previous years, but there were no funds for that,” he explained.

Will this really be effective? It has been said that this balance only works on paper, instead of helping with liquidity, because many of the projects being cut were not actually generating any expenses.

“It’s a two-pronged approach. First, I need to make sure that I’m not paying anything that isn’t current. That bleeds the accounts dry and leads us to a cash deficit. We’re avoiding that. The other thing is new money and new savings. This implies reducing agency expenses. In essence, we’re only paying essential costs and making cutbacks,” he added.

But are you considering the “fiscal cliffs”? In July, you will have to start taking money from the General Fund to pay the pensions, in October the Obamacare (Affordable Care Act, ACA) money will run out, and in December or January you will have to take another sum from the General Fund to pay the teacher pensions.

“We’re going with a ‘pay as you go’ approach with the retirement systems (this implies that the money will not come from special funds or from the systems’ investment revenues). Yes, the pension money is going to come out of the General Fund. This payment is also supplied by what the public employees pay. Besides, part of the earnings from the PPPs (public-private partnerships) that will be established won’t go to the General Fund, but to paying pensions. This will bring cash flow in addition to what we have.”

But the PPPs will take some time, and you need that cash in a couple of months...

“We’re going to have additional revenues. Once we stabilize the debt problem, we’re going to have a stable cash flow. When we increase collections—and we have a $379-million increase in collections (from the tax reform and the licenses)—we’re going to be able to pay. Pensioner payments will be a priority. All the agencies will have to make changes to be able to meet the objective of paying pensioners. And I think we’ll also manage the ACA issue well, although I’m not in charge of that.”

From what you are saying, I can understand that the contractor payments will be sacrificed at least for a while...

“They’re going on a schedule for current payments. We, as the Government’s Chief Financial Officer (CFO), are going to send a financial group to intervene with all the finance offices in the largest agencies. We’re going to reconcile accounts and make sure that there’s no non-essential contracting. Think about an agency receivership. The idea isn’t to hold back the checks, but to avoid issuing non-essential contracts. In the following months, we’re going to pay salaries, federal funds, and essential matters. All the previous contractor agreements are being paid according to the schedule, but we won’t allow new contracts for anything other than essential services.”

Have you finally defined what an essential service is?

“From the standpoint of Hacienda, I have two areas. There are essential services that are necessary because they are provided directly to the people. For example, the Health Department’s invoices include contracted services for nurses who see patients, or in Education, for tutors who serve students. Those are essential services. These services are often provided by non-profit organizations. But if it were an administrative consulting contract, we would put that contract on the payment schedule. What we’re telling the agencies is that every invoice paid and every contract signed has to be strictly for essential services. In all of this, we also have priority payments, which is the minimum that the Government needs to keep running, like gas, utilities, and some critical IT services. The rest is on the table and is being renegotiated.

How long are non-essential or priority payments taking?

“That’s going to depend on the cash flow. Right now, we’re paying 90 to 120 days after receiving the invoice. I’ve already paid everything from 2016. Anything that’s left is because the invoices hadn’t been entered into the system. That’s something we’re doing as well. We’re even looking in desk drawers to check if there are any invoices that weren’t entered into the system. We discussed this with the Oversight Board’s advisors, and that information is being shared. We want to be able to know at some point how much money we actually owe. That’s how we’ll be able to move forward with the financial statements, because we’ll know how much the real debt is.”

And are you going to pay the internal TRANs (the loans issued by public corporations to the General Fund at the beginning of the year, which amount to around $450 million) to the CFSE (State Insurance Fund Corporation), the ACAA (Automobile Accident Compensation Administration), and SINOT (Temporary Non-Occupational Disability Insurance)?

“The government’s philosophy is that it’s a single government. TRANs (Tax and Revenue Anticipation Notes) payments will be budgeted for later years, but will be approached integrally. It makes no sense anymore to separate the agencies. All public corporations are also on the table. We have to look at the government as a whole. We are done with private estates. And we’re all going to have to contribute. We’re budgeting all the interagency debts. But that liquidation doesn’t imply a total payment right now. All of this will be reevaluated in the future.”

But that would imply decapitalizing these corporations...

“That loan happened under the previous administration.”

But you’re the ones who won’t pay...

“But right now, we have to comply with an Oversight Board, and our goal is to protect the most vulnerable sectors. We’re going to do what we have to do, and we’re all going to have to adjust. The priority here is to avoid laying off public servants and to do right by the pensioners.”


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