Regular readers of this blog know that a U.S. government appointed board is struggling to restructure Puerto Rico’s $73 billion in public debt and $50 billion in pension obligations.
That’s why it was such a surprise for Puerto Rico to reveal in December that it was sitting on almost $7 billion in cash held in government bank accounts that was previously unaccounted for.
Puerto Rico’s financial oversight board said it would probe the sources of some $6.9 billion in cash held by the bankrupt U.S. commonwealth’s government in several bank accounts, according to Reuters.
In a statement, the federal oversight board criticized Puerto Rico’s financial transparency, noting it has yet to publish audited financial statements for fiscal year 2015, according to Reuters.
“It is essential that we improve the transparency and accountability of public finances to put Puerto Rico on the road to economic recovery,” board Chairman Jose Carrion said.
That’s true. But right now, Puerto Rico’s finances appear to be sitting in a black box. No one can get a good look, or even fully comprehend, the full extent of the island’s money woes.
Needless to say, this stunning lack of financial transparency should worry Puerto Rico bond and bond fund investors.
According to a Bloomberg report, Puerto Rico officials recently unveiled a summary of account balances for the debt-ridden territory’s various agencies and touted a push for more transparency, amid heightened scrutiny over the recent discovery of nearly $7 billion in undisclosed funds stashed in government bank accounts.
Facing a panel of financial professionals appointed by the U.S. government to oversee Puerto Rico’s landmark debt overhaul, the head of the territory’s fiscal advisory agency said that his team is hard at work to improve controls over governmental cash flow, address real liquidity challenges and improve transparency.
Forced to address concerns that the commonwealth is economically better off than it has let on, the agency’s executive director Gerardo Portela presented a report with recent cash balances for the government and its instrumentalities that are held in more than 800 bank accounts.
Portela, who acknowledged that there is work to be done to improve the local government’s accounting practices, said that although the recent cash revelations raised eyebrows, the island’s liquidity problems are genuine, according to Bloomberg.
In a recent letter sent to Portela’s office, the U.S. government also cited the recently published bank accounts, as well as a $1.7 billion commonwealth cash balance, as reasons for the Federal Emergency Management Agency to hold off on releasing community disaster loans to the territory’s government in response to the devastation caused by Hurricane Maria.
Because such money was available, the federal government will distribute the loans when Puerto Rico’s funds fall below a certain level, which will be determined by federal officials, according to the letter.
Puerto Rico is struggling to rebuild its infrastructure from the devastating effects of Hurricane Maria, but it also must get its fiscal house in order. Right now, it’s a mess.
Zamansky LLC is a New York law firm which represents investors in court and arbitration cases against securities brokerage firms and issuers. The firm may represent investors in cases against companies mentioned in this blog. Zamansky LLC also represents investors in arbitration cases against UBS and other brokerage firms regarding Puerto Rico bonds and UBS closed end bond funds and other investments.