Puerto Rico erupts at governor, but power resides far away

Demonstrators clash with police officers during a protest calling for the resignation of Gov. Ricardo Rossello in San Juan, Puerto Rico, on July 17, 2019. Demonstrators clash with police officers during a protest calling for the resignation of Gov. Ricardo Rossello in San Juan, Puerto Rico, on July 17, 2019. Photo: Bloomberg Photo By Xavier Garcia. Photo: Bloomberg Photo By Xavier Garcia. Image 1 of / 1 Caption Close Puerto Rico erupts at governor, but power resides far away 1 / 1 Back to Gallery

Infuriated by years of recession, corruption and living under a bankrupt government, tens of thousands of Puerto Ricans protested in Old San Juan, demanding the ouster of Gov. Ricardo Rossello after leaked text messages showed him and his aides to be vindictive, sexist and profane.

Whether he stays or goes may matter little to the forces that will help determine the island's economic fate.

After all, power over the U.S. territory isn't wielded in the governor's Fortaleza mansion alone. A significant portion resides five miles away in the offices of a Congress-created financial oversight board handed sweeping authority -- and with a bankruptcy judge. The turmoil in the streets may only prolong the two-year legal case that has left residents feeling powerless and that has stoked simmering resentment about quasi-colonial rule.

"Principally, we are here to protest Ricky," said 21-year-old Carlos Crespo from the suburb of Bayamon, who turned out with thousands of others Wednesday night to demand change. "He doesn't respect women, he made jokes about the people who died in Hurricane Maria. But we have been suffering for a long time."

Since Sunday, protesters have raged against a government whose power traditionally has been wielded by small, well-connected factions. Many younger demonstrators have said they are fed up with the island's two main political parties, which are split on the question of statehood but united in failure to improve a hurricane-ravaged commonwealth with a 45% poverty rate.

Tens of thousands took to the streets Wednesday night. The protests, largely peaceful at the outset, degenerated into a tear gas-suffused melee, with small bands of masked protesters and police playing a game of cat-and-mouse through the narrow streets of Old San Juan.

"The chats were the last straw," said Josarie Molina, 48, as she watched some protesters dance to traditional bomba music. "We are tired of struggling with every single thing, our cuts in services, education being cut, our taxes being raised. We think he's a puppet."

Police said at least five people were arrested during the protests, the latter part of which saw demonstrators setting fires and police firing tear gas that wafted into many homes.

Rossello on Thursday pledged to stay in office and restore Puerto Ricans faith in him. While most demonstrations were peaceful, any violence used by protesters will be address accordingly, the governor said in a prepared statement.

"I recognize the challenge before me for recent controversies, but I firmly believe that it is possible to restore confidence and that we can, after this painful and sad process, achieve reconciliation," Rossello said in a statement Thursday.

However, the decisions most central to Puerto Rico's future are being made in law offices, decorous courtrooms and in Washington as creditors tangle with the oversight board over the massive public debt.

Congress created the board -- known in Spanish as the Junta Fiscal -- to supervise Puerto Rico's budgets, multiyear fiscal plans and address its debt crisis. It manages the commonwealth's bankruptcy process and negotiates with bond holders.

Puerto Rico is seeking to restructure about $27 billion of obligations tied to the central government and its main utility, the Electric Power Authority, which was ravaged by Hurricane Maria in 2017. The board is now negotiating with owners of some $18 billion of central government-backed debt, the last major piece that needs to be dealt with in the bankruptcy. In addition, the government owes $50 billion to current and future retirees.

Rossello has fought with the board. The agency prevailed in court against the governor in a clash over how much the government could spend. The control board has proposed cuts to retirement benefits, while Rossello adamantly refuses to reduce them.

Investors accustomed to Puerto Rico's troubles have kept prices on the debt steady amid the recent upheaval. Commonwealth general-obligation bonds that mature in 2035, one of the government's most active securities, traded Thursday at 53 cents on the dollar, little changed from where they were before the release of the chats.

This week's protests will likely do little to alter financial facts.

"The turmoil may cause some delay, but the oversight board is still going to restore fiscal responsibility, market access and restructure the debt," said Martin Bienenstock, a lawyer who represents the agency in bankruptcy court.

Meanwhile, Rossello is beset on many fronts.

Hurricane Maria devastated the island, killing thousands. Congress has allocated about $42.5 billion in disaster aid, but Puerto Rico has received only about $13.6 billion, according to the federal government.

Rossello's ability to pry the money out of Washington is in doubt. President Donald Trump has been loath to help the commonwealth, saying the government is corrupt and untrustworthy. Rossello angrily denied that. Then, two former high-ranking members of his administration were arrested last week on charges of theft, money laundering and wire fraud.

That set the stage for the scandal some call "Ricky Leaks." Local news outlets published texts among the governor and his aides that used misogynistic language and disparaged opponents and ordinary Puerto Ricans.

In one chat, Rossello refers to Melissa Mark-Viverito, the island-born former New York City Council speaker, as a "whore." When Christian Sobrino, a key financial official, suggested he was "salivating" at the idea of shooting San Juan Mayor Carmen Yulin Cruz, Rossello responded: "You would be doing me a favor."

The streets exploded. The singers Residente and Bad Bunny, who were at Wednesday night's rally, released an impromptu single calling for Rossello to quit and calling him -- in deeply impolite language -- corrupt.

Rep. Raul Grijalva, an Arizona Democrat who chairs the House committee that oversees the island, called for Rossello to resign. On Tuesday, Carlos Johnny Mendez, the head of Puerto Rico's lower house of congress and a member of Rossello's party, said the body was soliciting a report from a group of jurists on the legality and procedure of impeaching Rossello and removing him.

The governor, who faces reelection in 2020, has said he won't quit, but the fallout already has hobbled his administration.

Sobrino, Rossello's non-voting representative on the oversight board and head of the island's Fiscal Agency and Financial Advisory Authority, is set to leave both positions by the end of the month, according to local reports.

Sobrino had the task of helping persuade U.S. District Court Judge Laura Taylor Swain to approve the utility debt deal after creditors suggested sidelining the administration by appointing a receiver. Sobrino told the judge that his absence would handicap the restructuring.

"Replacing the current management team and advisors that are up-to-speed on these measures and invested in their success has the potential to delay, derail, or impair progress," he wrote in a filing last month.

Now he will be gone.

Secretary of State Luis Rivera Marin, who also was embroiled in text scandal, is also set to leave. According to Puerto Rico's 1952 constitution, he would be governor if Rossello departs. Next in the line of succession is Secretary of Justice Wanda Vazquez.

Whoever is governor will be under intense popular pressure to fight the oversight board. On Wednesday night, protesters chanted "Ricky go home, and take the junta with you!"

Brad Setser, a former U.S. Treasury Department official who worked on the federal legislation that created the board, said a governor at war with the agency could hinder the commonwealth's ability to heal its economy and finances.

"The board has a great deal of authority, legally speaking, but you would normally think that if you're renegotiating the debts of Puerto Rico, that you would want the governor to be on your side," said Setser, a senior fellow at the Council on Foreign Relations. "It would be awkward to be doing a restructuring that doesn't have the implicit backing of the governor."

What's clear is that Rossello has explicitly lost the backing of many constituents.

"He's completely immoral," 64-year-old Nancy Alvarado said Wednesday as she sat on a low wall in San Juan's colonial quarter and watched the demonstrators stream by.

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Bloomberg's Steven Church and Michael Deibert contributed.