Puerto Rican debt crisis enriches CEO charged with fixing it, protesters say
Last week, a small team of protestors marched in Newton Center outside BayBoston, a financial services private equity firm whose owner, they say, has lined his pockets through helping create Puerto Rico’s debt crisis, before becoming appointed one of the handful of people charged with reconfiguring the island’s finances, and now is profiting from providing high-interest loans to impoverished citizens who have few other options.
The man in question is Carlos Garcia, owner of BayBoston, chair of the Caribbean Financial Group, member of Puerto Rico’s Fiscal Control Board and a former top executive at Santander Bank.
On the web
Read the report, “Pirates of the Caribbean” by the Committee for Better Banks and the Hedge Clippers: http://hedgeclippers.org/pirates-of-the-caribbean-how-santanders-revolving-door-with-puerto-ricos-development-bank-exacerbated-a-fiscal-catastrophe-for-the-puerto-rican-people/
As a Control Board member, Garcia shares responsibility for implementing measures to resolve the debt crisis — wielding an authority that supersedes that of elected officials. Demonstrators call for him to step down from the Control Board, given what they say are egregious conflicts of interest.
Fiscal Control Board
The Control Board approved a ten-year fiscal plan in mid-March with measures that include capping Medicaid benefits, privatizing some public assets, slashing public pensions by 10 percent, furloughing tens of thousands of government workers and teachers and eliminating Christmas bonuses. According to NBC News, the board members promised to ensure pension cuts do not push anyone below the federal poverty line.
In response to Control Board urging, the island’s government also declared in early March that it would seek to reduce expenses by closing and selling more than 300 public school buildings and stripping more than $300 million from the University of Puerto Rico’s budget.
“Almost four million Americans are fleeing [their homes in Puerto Rico] to come here to better opportunities,” said Damali Vidot, Chelsea city councilor at-large and city council vice president, during last week’s demonstrations.
According to Otoniel Figueroa-Duran, an organizer of the demonstration, conflicts of interest color the Control Board’s efforts and their actions reflect that the wellbeing of those living in the American territory is not their top priority.
“The Fiscal Control Board is not responsive to the people of Puerto Rico but to the banks,” Figueroa-Duran said. “That’s why it’s pushing to close schools, hospitals — because they do not care about the people. Working families should not bear the brunt of this disaster.”
Given the powers of the Control Board, its members could choose to change or scale back the plan even though it has been approved, according to Figueroa-Duran.
Profiting off a growing crisis?
Garcia served as an executive of Santander, before in 2009 leaving for a time to head Puerto Rico’s Government Development Bank. While here, he issued COFINA bonds on behalf of the government. These were a new kind of municipal debt used to refinance existing bonds and secured by regressive sales and tax receipts. Essentially, they directed sales tax revenue to repay bondholders, instead of directing it to shoring up public services, a move demonstrators criticized in a Dec. 2016 protest. Among the banks hired to issue these COFINA bonds and paid hefty underwriting fees to do so was Santander bank.
Demonstrators also questioned the financial logic behind many COFINA bonds issued. According to a report from the Hedge Clippers and Committee for Better Banks, in Garcia’s first year at the Government Development Bank, Puerto Rico passed a law permitting the treasury secretary to refinance debt without consideration of whether it would save the government money.
In 2011, Garcia then returned to Santander — a move some say suggests that while working for the government he set himself up for private profit. A separate Santander executive took over the GDB from Garcia.
Garcia since has been named to the Fiscal Control Board charged with righting Puerto Rico’s economy, and which has instituted austerity measures. Demonstrators such as Councilor Vidot say appointing someone who seems to have profited off exacerbating the government’s financial straits to now control the island’s financial future represents a dangerous conflict of interest.
“People here have a direct hand in creating debt in Puerto Rico and now are responsible for how its debt is repaid,” Vidot said.
Profiting off austerity?
Now attention is turned to Garcia’s role in Caribbean Financial Group (CFG), a firm that offers small, unsecured personal loans. These are just the kind of loans that poor individuals with limited options — such as members of the Puerto Rican populace turned destitute under the debt crisis and austerity measures — would turn to, and they are offered at predatory interest rates, demonstrators say.
Many of CFG’s loans appear designed to extract further wealth from the populace. Caribbean Financial Group, also known as CommoLoCo, advertises online personal loans with interest rates of about 25 percent over four years, according to the recently-updated Hedge Clippers-Committee for Better Banks report. In one anecdotal account cited in the report, a prospective borrower discovered CFG loans offered at interest rates of up to 49 percent. Puerto Rican law imposes no limit on the interest rates that can be charged on small, unsecured personal loans.
Garcia appears to stand to profit. According to his personal financial interest disclosure, he could be rewarded with a special bonus from CFG if the firm attains a certain level of expansion in Puerto Rico, the Hedge Clippers-Committee for Better Banks report states.
“He [Garcia] is personally involved in directing and raising money for a predatory lender that targets Puerto Ricans,” the report states.
Garcia also is CEO of BayBoston, a limited liability corporation, and stated in his disclosure that its purpose is investing in CFG, according to the Hedge Clippers-Committee for Better Banks report. He did not disclose the salaries he draws from CFG or BayBoston.
Meanwhile, in the U.S., Garcia has local ties — including serving on the Hyde Square Task Force. Myriam Ortiz, executive director of The City School, said involvement in useful local organizations gives Garcia an air of respectability belied by his impact in Puerto Rico.
Ortiz told demonstrators, “Garcia is the face of the Puerto Rican crisis.”