Had Puerto Rico continued with the fiscal discipline measures adopted durig Luis Fortuño administration, the government would not be under the control of a federal board, assured the former president of the Government Development Bank (GDB) and current member of the Fiscal Oversight Board, Carlos M. García.
“During my time (in the GDB), austerity measures had to be taken, but, if those measures, combined with other initiatives that we took had remained, we wouldn’t be in the situation we are today”, said García.
After months of being the target of attacks from the unions, political leaders and citizens organizations in the United States, García defended his role in the Board and his performance as president of the GDB between 2009 and 2011, as well as what was done in the Fiscal Stabilization and Recuperation Board (JREF, Spanish acronym), which is remembered for implementing the Law 7 of Fiscal Emergency of 2009 and the dismissal of thousands of public employees.
It was not all austerity
“There were not only austerity measures”, noted García. “Also the implementation of tax to foreign corporations that has been the lifesaver from the point of view of Government collection”, he added.
The so called tax of 4% gained for García the repudiation of the private sector, but, today, that - which this year was extended to last for another decade - represents almost a fifth of the General Funds income.
Last May 16th, Hedge Clippers published its third report about the Puerto Rico fiscal crisis in which they point at García, before executive of the Santander Group, of having “plundered” a fund for projects infrastructure known as the “Corpus” account and the issue of over $11,000 billion on GDB notes.
Before, the organization also asked for the resignation of the directive, José R. Gonzalez, once GDB president and Santander executive, who lashed into Hedge Clippers at the beginning of this year.
Last May 23rd the Fiscal Oversight Board wrote to Stephen Lancer, Hedge Clippers and the Service Employees International Union (SEIU) directive, to the authors of the Saqib Bhatti report and to Teresa Casertano, as well as the AFL-CIO president Richard L. Trumka and the leader of that union on the Island, José Rodíguez Báez, to warn them that the Hedge Clippers reports makes false representations and that García and González - as well as the rest of the directors of the Board - were evaluated extensively by the White House and the Department of the Treasury before being designated.
“Those attacks have resulted in unacceptable harassment and abuses to some of the members of the Board, a behavior that we assume, you do not condone and do not wish to promote”, prays the letter from the legal advisor of the Board, Jaime El Koury.
The Corpus account
“That transaction was made under a law broadly discussed and was executed according to legislation”, said García in reference to the Law 3 of 2009.
In 1999, when Telefónica of Puerto Rico was sold, Pedro Rosselló administration created the Corpus account and injected it with about $1,200 billion resulted by the transaction. The returns of that account were a collateral of bonds of the Infrastructure Financing Authority (IFA), a GDB subsidiary.
According to García, IFA developed the projects of infrastructure that were contemplated then and the selling of the Corpus assets were favorable to the Island.
The sale of assets of the Corpus account left the Government non-recurring incomes for $1,950 billion, that is $750 millions more than the initial injection. The greater part of that money, about $1,100 billion, was used to pay the IFA debt and the difference was used to capitalize the GDB and to inject money into the Retirement System Administration (ASR, spanish acronym), explained García.
“What really happened was that the IFA public debt was reduced”, he added.
“When I arrived at the bank, it had been a while since it hadn´t operated as such. The interest income and expense difference was in a highly precarious situation”, said García, when recalling that the special dividend of $500 million to the Special Communities program contributed to erode the GDB capital.
The “swaps” blow
On the other hand, García recalled that, when he arrived at the government, the Treasury was being exposed to millions of dollars loses after the government and several public corporations entered in the ‘swaps’ (interest exchange insurance) purchase, an instrument of investment that promises to compensate for the adverse impact of an interest rise. Between 2007 and 2008, Puerto Rico bought about $8,000 millions in those products.
“If we had not acted in 2009 protecting the government of Puerto Rico from the threats of the thousands of millions agreements in ‘swaps’, assumed the responsibilities for the extra-constitutional debts already contracted and tackled the budget deficit, Puerto Rico would have collapsed in those days”, García stated.
El Nuevo Día asked García why he decided to take part in the Oversight Board in the face of the multiple controversies around his performance.
“My commitment was then and is today, with Puerto Rico, and no one else. This time, from a non-political stand on the Board. This is an assumed responsibility without any economic compensation, to a high personal and family cost, only motivated by the wish of serving Puerto Rico”, he noted.