The Gov. Luis Fortuño administration sent a scathing letter to Moody’s Investor Services Thursday, expressing its “utter disappointment” with the agency’s decision to downgrade the Puerto Rico Sales and Use Tax Financing Corporation’s bond rating.
In the three-page document addressed to Robert Kurtter, managing director of Moody’s public finance group, GDB President Juan Carlos Batlle challenged the agency’s rationale that included references to the island’s protracted recession and underperforming economy, while asking for a reconsideration of the rating action.
“We find these references to be completely inconsistent not only with our recent indicators and economic growth projections, but also with Moody’s Analytics’ own economic assessment, which states that Puerto Rico’s economy is expected to grow during FY 2012 by 0.3 percent and FY 2013 by 2.6 percent,” he said.
He also noted that the 0.6 percent economic expansion reflected in the second quarter “is clear and compelling evidence that what used to be a protracted recession is finally over and Puerto Rico is set to continue its path toward sustainable economic growth.”
Moody’s announced Wednesday its decision to downgrade $16 billion in bonds sold through the public corporation known as COFINA. The New York-based credit ratings agency cut a combined $6.8 billion in senior bonds to Aa3 from Aa2 and $9.2 billion in subordinate bonds to A3 from A1.
In his argument, Batlle noted that Puerto Rico’s economic environment has “improved dramatically” since Moody’s upgraded COFINA’s ratings in 2009. He said consumer confidence has increased across key economic sectors, including retail sales, sales and use tax collections, auto sales, home sales, cement sales.
He also noted tourism is showing healthy results, while the banking sector has returned to profitability after nose-diving four years ago.
“Bob, Puerto Rico has a long way to go. We know this and have acknowledged it privately and publicly over and over again,” Batlle said. “However, we do feel strongly that we have achieved fiscal and economic milestones that many jurisdictions and countries, the United States included, only wish they could have accomplished in such an orderly manner.”
“At times we believe we are being penalized for being responsible and not making harsh, unreasonable decisions that could do more harm than good, as we are seeing all over the Eurozone today,” he further stated.
Private praise, public chastising
The Fortuño administration also took exception to the fact that while privately, Moody’s has allegedly praised its efforts at achieving fiscal stabilization, “the recognition seems to be totally absent in your decision-making process and public pronouncements.”
“We strongly believe that the negative rating action taken by Moody’s yesterday [Wednesday], is simply unwarranted and unjustified at this point and totally inconsistent with your own rating upgrade back in May 2009, as well as your reaffirmation of that rating as recently as last November, an issue with respect to which your report today [Wednesday] is curiously silent,” Batlle said in the lengthy letter.
He also fired off against Moody’s for bringing up “non-issues” such as its reference of the phase-out of territorial tax benefits that took place before COFINA existed.
“Bob, Puerto Rico is headed in the right direction and can only hope that continued mixed messages from Moody’s will not be able to derail our efforts or risk sending Puerto Rico back to the lost ways of its past, something that none of us can afford,” the GDB chief said. “We all [government, rating agencies, investors and the people of Puerto Rico] have to be responsible and consistent with our actions, and that is all we are asking for: consistency in the application of your own rating parameters.”
Batlle ended the letter by asking Kurtter to convey the Fortuño administration’s sentiments to Moody’s credit committee and senior management.