Two Fiscal Control Board Members Accused of Helping Create Puerto Rico’s Debt Crisis

santanderpuertorico_01-11-220x300Daniel Marans (Huffington Post) writes about a recent report that calls for former bank executives—José Ramón González and Carlos García—to quit the island’s fiscal control board:

Activists are calling for the resignation of two members of Puerto Rico’s fiscal control board over the roles they previously played in boosting bank profits at the expense of the island’s financial health. The control board, which has veto power over major Puerto Rican budget decisions, was created by Congress in June as the island foundered under $70 billion in public debt.

A new report, titled “Pirates of the Caribbean,” argues that control board members José Ramon Gonzalez and Carlos Garcia should be held accountable for their part in plunging the island into debt. The paper, released Thursday, comes from two progressive coalitions, Hedge Clippers and the Committee for Better Banks, which both seek to combat the political power of financial institutions.

Before they were appointed to the control board, Gonzalez and Garcia moved between top positions in Puerto Rico’s Government Development Bank (GDB), which issues the island’s government bonds, and Banco Santander, the Spanish-owned mega-bank that was buying and structuring the vast majority of those same obligations. The report alleges that Garcia, Gonzalez and other executives at Santander presided over an explosion of lucrative underwriting that allowed the financially strapped island to continue borrowing huge sums, but on increasingly risky terms. The structure of those loans, the report suggests, was more favorable to Santander and other financial institutions than to the government ― and thus the taxpayers.

Santander participated in the underwriting of $61.2 billion of the island’s $70 billion in debt, according to the analysis. The report estimates that more than $1 billion went toward management fees for Santander and other banks. The island shelled out another estimated $735 million to the banks to cancel interest rate swaps ― bets the government had made on future interest rates.

For the loans it underwrote, Santander frequently set up onerous payment structures using exotic financial tools, the report says. For example, the Santander loans cost Puerto Rico $1.5 billion in “capitalized” interest payments ― that is, the island was also borrowing to pay the interest on its loans. And complicated 2009 bond issue that Santander underwrote netted Puerto Rico $139 million, but required it to pay back $730 million ― five times the value of the loan ― according to the report.

Gonzalez and Garcia held top jobs at the private bank as it profited off Puerto Rican taxpayers, when they weren’t running the government entity that was issuing those bonds. [. . .]

As Puerto Rico’s debt rose, the island’s elected officials began pushing the burden of repayment onto the public. Beginning in 2009, then-Gov. Luis Fortuño instituted major austerity measures, laying off tens of thousands of public employees.

“Santander and other banks purposefully manipulated a government desperate to avoid financial ruin and shared in over a billion in collected profit as it pushed Puerto Ricans deeper and deeper into nearly unrecoverable poverty,” Stephen Lerner of the Hedge Clippers coalition said in a statement accompanying the report. “Santander, as well as former Santander executives who now serve on the fiscal control board, must pay the price.” [. . .]

For full article, see

One thought on “Two Fiscal Control Board Members Accused of Helping Create Puerto Rico’s Debt Crisis

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s