Op-Ed: GDB’s response to CNE’s ‘open letter’
EDITOR’S NOTE: This entry is the Government Development Bank’s response to the “open letter” that Sergio Marxuach, public policy director of the Center for the New Economy, posted on this website Wednesday.
The Government Development Bank for Puerto Rico is proud of its long tradition of professional management, transparent corporate governance and utmost respect toward the investor community and the people at large. The current administration, under the leadership of its President, Juan Carlos Batlle and previously Carlos M. García, has been a zealous guardian of this tradition.
Current management has worked diligently and professionally in the task of fixing the fiscal debacle left by prior administrations; failed policies that resulted in a dramatic increase of our public debt to levels never seen before and the worst economic recession in Puerto Rico’s history.
The results of our efforts have been recognized by the investor community and the credit rating agencies, as abundantly reflected in the public record. We have always acknowledged the challenges we still face, but progress is evident and unquestionable.
Of course, we do not expect recognition from former government of Puerto Rico officials —like Mr. Marxuach — who were directly involved in the failed policies and fiscal mismanagement that we have worked so hard to correct. This is only natural, since the actions and policies that we have put in place to fix Puerto Rico’s fiscal situation and save Puerto Rico’s credit rating from the brink of a downgrade to non-investment grade have had the effect of highlighting the lack of wisdom, and at times outright negligence, of the policies and management of those former government officials responsible for the fiscal mess we have had to correct.
We do appreciate and value everyone’s opinion, including that of commentators whose impartiality may, for obvious reasons, be called into question by public opinion.
However, we feel compelled to state for the record that Marxuach’s comments and analysis, as expressed in his open letter are — like the policies and actions he helped implement during his tenure as a government official — misguided and inaccurate.
The analysis presented by our President regarding debt per capita in Puerto Rico is rather straightforward.
In his comments, Marxuach would have us add up all of the debt issued by all government related entities in Puerto Rico under the same category as if everything were to be paid from the same source. We beg to differ.
At present, Puerto Rico residents do not pay federal taxes, the main source of revenue to the U.S. Treasury to pay debt service on its bonds. As such, Puerto Rico residents DO NOT support the federal debt. By contrast, residents of all 50 states, who pay federal taxes, do. So, in very simple terms, if the tax revenue received by the U.S. Treasury from each state is used to pay the federal debt, ultimately, each state is responsible, proportionately to its share of national income, for such federal debt.
A simple analysis, which is what we presented recently and have presented in many other forums, including to the rating agencies, shows that when you allocate the proportionate share of federal debt to each state, Puerto Rico is NOT the one with the highest TOTAL debt per capita. Far from it.
This analysis has been prepared by GDB at different times for over 20 years and has been previously discussed with rating agencies and other investment forums on multiple occasions. Data used in the analysis is publicly available from the Statistical Abstract database of the U.S. Census Bureau and compiled by GDB’s Economic Studies division annually.
We don’t expect everyone to accept, or even understand, our analysis, as we DO believe and respect that individuals may have different opinions on many matters.