GDB’s Ferrer: ‘Credit cut is something nobody wants’
Government Development Bank President Javier Ferrer said the García-Padilla administration is “analyzing all types of measures” to address Puerto Rico’s critical fiscal problems fronted by the drained public retirement systems that are being closely watched by stateside credit agencies.
And while he refrained from revealing the solutions the government is contemplating, Ferrer said, “we’re working tirelessly to avoid a credit downgrade that would have a broad impact over our economy, and that includes everybody: individuals, corporations and the government.”
In his first sit-down with business reporters, Ferrer — who was named to his post Jan. 2 — acknowledged that a decision by a credit agency to downgrade Puerto Rico’s credit to “junk” status would “unleash a chain of events that would have a severe impact” on the island.
“It would be very difficult to finance our public infrastructure projects, we would have very limited access to markets and even if we had access, costs would be much higher than if we were to go to market having resolved our situation,” he said.
It was two months ago yesterday that Moody’s Investors Service downgraded Puerto Rico’s general obligation rating to Baa3 from Baa1, affecting about $38 billion of the island’s debt held by more than a handful of agencies.
Since then, the new administration has “had some preliminary conversations, but none have been to present solutions to the retirement systems problem because that’s something the governor has to decide on and announce.”
That announcement could come in early March, this media outlet has learned. The unfunded retirement systems liability was pegged at $35.2 billion in June 2011.
Involved in crafting the package of alternatives to address the underfunded retirement systems are the GDB, the Treasury Department, Commonwealth Retirement System representatives and lawmakers, he said.
“This is something serious. We understand that and are working on it,” Ferrer said. “It’s not something easy to solve and will require that everyone contribute to the solution, but our north is to protect pensions.”
In his conversation with reporters, Ferrer was emphatic about the negative consequences of the prior administration’s failure to draft legislation proposing solutions to the retirement system’s insolvency by the November 2012 deadline they had announced.
“The people were told last year that whatever happened during the elections, the governor would pass a retirement systems reform package that would solve the decades-old problem. The elections happened and no legislation was passed. Certain things were told to credit agencies that didn’t happen and the rest is history,” Ferrer said.
And while Moody’s based its decision to downgrade mostly on the retirement systems issue, Standard and Poor’s brought up another problem: Puerto Rico’s unbalanced budget.
“That’s another one of our goals, but it will be very difficult to achieve by fiscal 2014, like they said,” Ferrer admitted. “We’re going to try to get it done by fiscal 2015, but even then, we’ll likely fall short. So that’s why it’s critical for us to grow our economy.”
Saying he couldn’t speak for credit ratings agencies, Ferrer did say he believed that “if we show actions that lead us responsibly in the right direction, that will restore the Puerto Rico’s credibility in the markets and will give us reasonable time to achieve a balanced budget.”
Puerto Rico is dragging a fiscal deficit of $1.2 billion.