Puerto Rico co-ops unfazed by debt-forgiveness talk, Moody’s downgrade
SAN JUAN – Cooperatives Supervision & Insurance Corp. (Cossec by its Spanish acronym) Chairwoman Ivelisse Torres said Puerto Rico credit unions, which have a significant investment in government bonds, will not be affected negatively if Washington, D.C., decides to forgive Puerto Rico’s debt.
In recent weeks, various sectors and officials, such as former Democratic presidential hopeful Jessie Jackson, have called for Puerto Rico’s $69.8 million debt to be forgiven because the destruction caused by the Hurricane María makes attempts at repayment= even harder, despite the local government and several public corporations having entities filed for bankruptcy under Title III of the Promesa federal law.
Island co-ops loaned some $1.5 billion to the local government from 2009 to 2012, of which 65 percent, or $976 million, was invested in Puerto Rico government bonds. Of that percentage, $459.2 million was invested in the Government Development Bank and $88 million on Sales Tax Financing Corp. (Cofina by its Spanish acronym) bonds. Cossec is designated as a covered entity by the fiscal board.
Moreover, Moody’s further downgraded the government’s debt, which was already non-investment grade.
Torres assured, however, that cooperatives are solid and the fiscal plan considers the loss of the total value of the bonds.
“In the fiscal plan, we contemplate 100% of the risk. So for us it does not mean any instability. In the Cossec plan, the worst possible scenarios had been observed and the cooperative system was proven to be stable. So the board recognized it and congratulated Fafaa [Fiscal Agency and Financial Advisory Authority] because of the fiscal plan that was made,” Torres said.
However, she said Cossec was seeking a meeting with the fiscal oversight board to share some perspective of the 116 cooperatives in the aftermath of Hurricane María. “As soon as the board begins its meetings or they send their representatives, Cossec’s team will be ready to give them the information they need. The team is ready to make any additional analysis,” she told Caribbean Business.
Moreover, she recognized that the block grant assigned to Puerto Rico by the U.S. Congress helps credit unions.
“In that sense, federal aid helps because as at the measure the economy stabilizes, people can continue carrying out their financial transactions,” she said. “We have a million members and it’s necessary for them to be stable. If people don’t have money, there is a snowball effect,” she argued.
Currently, 94 percent of cooperatives are now operating. This represents 110 main establishments and more than 40 bank branches. The commercial banking sector has yet to fully recover.
Most cooperatives have limited operating hours due to having to run with diesel-powered generators.
“Reality has touched us all,” Torres said. “That is why we must take measures and make contingency plans. Those plans are that you reduce operation hours and that cost can be reduced to offer service to your members.”