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Home > About GDB > History

History

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The Seventies: The Crisis Years

In the 1970's the island’s economy, which had grown significantly during the previous two decades, came to a sudden halt. The Arab-Israeli War at the start of the seventies and the ensuing oil embargo had a devastating effect on Puerto Rico due to the island’s strong dependency on oil for its energy needs. The cost of gasoline and electricity rose dramatically and that had a ripple effect throughout the economy. Thousands of Puerto Ricans lost their jobs and even those who had jobs had a difficult time making ends meet as the cost of living rose dramatically.

GDB once more faced the challenge of finding alternatives to help the island overcome this sudden economic downturn. And once again, the Bank came up with some creative answers.

In 1972 the Bank created the Puerto Rico Municipal Finance Agency as an affiliate. Its primary purpose was to facilitate the municipalities’ access to capital markets in order to bolster their economic self-sufficiency and reduce their dependence on central government funding.

In 1974 the Bank ventured to the bond market for the first time with a competitive bid of Tax Revenue and Anticipation Notes (TRANs) for Puerto Rico. This gave the government quick access to funds and allowed the Bank the flexibility to time the market. With the U.S. municipal bond market virtually closed, the GDB in 1975 negotiated the first Note Purchasing Agreement and gave the government access to financing. Also in 1975, the Bank participated in Europe’s bond market for the very first time in order to sell Puerto Rican debentures. The success of this sale prompted the Bank to promote a second sale a few months later.

In a fresh burst of creativity, the Bank in 1976 came up with a completely new concept of raising funds for the government: savings bonds. In 1977, the Bank established the Puerto Rico Development Fund, a subsidiary empowered to invest in capital stock and guarantee long-term loans for private businesses unable to obtain credit from private banking institutions. The following year, the Development Fund issued debt totaling $25 million to complement its original capital of $5 million, thus enabling it to expand its assistance to the private sector.

In the late 1970's the Bank launched a new initiative to help stimulate the housing sector: the Puerto Rico Housing Finance Corporation (today, Puerto Rico Housing Finance Authority), created to finance the construction and rehabilitation of low and middle income housing; to grant mortgage loans to families of limited income so that they could purchase their own homes; and to guarantee interim financing for housing construction projects.

Another important initiative was the creation in 1977 of the Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority, better known as AFICA. This new entity provided an alternate, tax-exempt mechanism for financing capital investments by both public and private entities aimed at promoting the island’s social and economic development.

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