The agreement reached with a group of creditors of the Government Development Bank (GDB) shows that Puerto Rico can go out of the fiscal crisis through the negotiated solution of its debt obligations with benefits for different sectors.
The recent agreement with GDB, which is the second after the one achieved by the Puerto Rico Electric Power Authority (PREPA), also seeks to prevent bondholders and depositors from losing all their investment in an institution that is in bankruptcy and on the way to close in the term of ten years.
It is to emphasize that an important number of cooperatives, the Ad Hoc Group of holders of banknotes of GDB and bondholders have endorsed the agreement.
They have done it consciously, yielding in the best interest of their represented ones, and under the understanding that, in reasonable terms, they can recover a significant portion of the main investment.
The stability that the agreement provides cooperatives is essential for this sector to keep its important role in the Puerto Rican economy. There are 116 savings and credit cooperatives operating on the Island with 966,274 partners and they reflected assets of $8,470 billions by 2015, according to the Public Corporation for Supervision and Insurance of Cooperatives (Cossec).
It is vital for the Government, and for the country in general, the positive development that occurs to generate trust in the negotiation process and to clear the pernicious element of uncertainty between the bondholders of Puerto Rico, seriously harmed by the bankruptcy of the once main fiscal agent of the Island.
Achieving specific agreements should facilitate judicial processes which will be handled by Title III of PROMESA.
The proposal is based on an exchange of the debts of municipalities, cooperatives and depositors of the Bank for three types of instruments that would be issued by a successor institution. This would work as a trust that would take over the debt, and would be created by legislation.
Cuts go from 25% by up to 45% of the total, depending on the instrument that the creditor chooses.
The bonds would be paid by the assets of the banking institution that still generates cash, mainly municipal loans portfolio. This is one of the contentions of the mayors, among whom the agreement has created some tension. It is important to measure the effect of the agreement in the already losing town halls coffers, and the impact that by rebound, could have in the citizens´ pockets.
The way to achieve understandings with municipal governments is to dialogue and negotiate in good faith, something that happened with the subscribers of the agreement and already bore fruit in the short time of two months.
There is still the fact that at least the 67% of the creditors of the Bank join the agreement and the Oversight Board to give the go-ahead. This would allow to make effective the proposed liquidation of the assets of GDB and the transfer to the new institution as a collateral to three types of bonds, with different levels of repayment of the total, interest rates, collateral priority and other terms of payment.
The precedent that is set can be an achievement for the country and should reproduce. As the constraints on obligations are being solved, the attention of the public authorities can focus on the restructuring that lies ahead.
Both for the Government and for the private sector, the public compliance with obligations opens windows of opportunities for new ventures and to strengthen the invested.
The goal is to regain the confidence of the market values and the people, as essential conditions for reviving our ailing economy.
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