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S&P disappointed with lack of local government consensus

Ratings agency concerned with discord between executive and legislative branches; warns of serious consequences


April 28, 2005
Copyright © 2005 CARIBBEAN BUSINESS. All Rights Reserved.

Standard & Poor’s (S&P) analyst Kenneth Gear expressed serious concern over the differing approaches between the local executive and legislative branches in terms of the budget for fiscal 2006.

Gov. Aníbal Acevedo Vilá presented his proposed budget for fiscal 2006 on March 16. Since then, the Legislature has presented tough opposition to the initial proposals and opened a series of public hearings to propose an alternative budget for the new fiscal year. If there were no consensus on the budget by the end of fiscal 2005 (June 30), the current budget would once again go into effect.

According to members of the governor’s economic team, this could lead the local economy into a financial tailspin, given the present $1.7 billion deficit and the fact that the government is facing a potential credit rating downgrade and negative outlook reports by ratings agencies.

"We were assuming there would be legislative support and this [action by the governor] was going to be embraced as a Commonwealth-wide approach to the budget, but clearly the fact that the Legislature is dealing with this in a completely different way than the administration represents a serious concern for us," Gear said. "It represents a real concern from a ratings standpoint and from the standpoint of all the bondholders as well," pointed out Gear.

Gear’s comments arrive nearly two months after he told CARIBBEAN BUSINESS, in an exclusive interview, that he wanted to give the new economic team a chance to put in motion some of the proposed measures to balance the budget and reduce the $1.7 billion deficit, before completing any formal evaluations (CB March 10). However, with the local turn of events since, the window of opportunity seems to be closing.

S&P and Moody’s, which is also rating Puerto Rico’s credit, is scheduled to meet with the local government economic team the first week in May to discuss the situation surrounding the new budget. William Lockwood, president of the Government Development Bank for Puerto Rico, invited members of the legislative branch to meet with the rating agencies, a meeting which Gear is looking forward to.

"That [meeting] is a step in the right direction. We want to get feedback from the Legislature. We are looking for an accurate representation as to where the Legislature is leaning. Ultimately, we want to see a consensus between the administration and the Legislature on the actions to be taken in going forward with the 2006 budget and the balancing of what remains of the 2005 budget," he explained.

Gear said S&P would emit evaluation reports after the meeting with the economic team and the Legislature. The report is expected by mid-May, preceding a new sale of bonds. However, it is possible Moody’s will emit a report before the upcoming meeting.

This Caribbean Business article appears courtesy of Casiano Communications.
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