Puerto Rico scandals may strengthen Oversight Board's hand

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Widespread Puerto Rico protests and calls for the resignation of Gov. Ricardo Rosselló may strengthen the Oversight Board’s impact, at least temporarily.

The Oversight Board, formed in 2016 to manage fiscal policy and help the territory restructure its debt, is “facing a weak government,” said Vicente Feliciano, president of Advantage Business Consulting. “Thus, it could impose its will as long as it stays within reasonable bounds.”

Evercore Director of Municipal Research Howard Cure agreed. “With the taint surrounding the administration, the board may now feel emboldened to make more unilateral decisions and hope they get the cooperation of the bankruptcy court judge [who] might be less sympathetic to the administration.”

“With [Rosselló’s] declaration of not seeking reelection, the governor is a lame duck, so I am not sure whether or not it makes a difference if he resigns or finishes his term,” Cure said.

Over the last 12 days the governor has been rocked by federal charges of corruption and mis-allocation of contracts against two cabinet officials and three government consultants and by the leaking of private chat messages among Rosselló and other prominent members of his administration. In the chat messages the governor referred to New York City Councilwoman Melissa Mark-Viverito as a “whore” and suggested that she should be raped. He used an obscenity with regard to the Oversight Board.

In other messages officials made what some have seen as sexist remarks about woman. Chief Financial Officer Christian Sobrino Vega made a joke about shooting San Juan Mayor Carmen Yulin Cruz and the governor said the shooting would do him a favor.

Since then there have been several San Juan demonstrations calling for the governor to resign, which he has said he won’t do. He has apologized, said he won’t run for reelection, and resigned his role leading his political party.

Because of the texts, Sobrino Vega has said he will cease service for the governor in a few days. The governor’s secretary of state has also resigned because of his texts.

Since the progressive release of the texts in mid-July, several key Puerto Rican political actors have called for the governor to resign. The governor’s 2016 running mate and current non-voting Puerto Rico representative in Congress Jenniffer González Colón said Friday the governor should resign.

The El Nuevo Día news web site, one of most respected local news sources, added its voice to the resignation calls Monday. Puerto Rico House Speaker Carlos Méndez Núñez, who is a member of the New Progressive Party with the governor, said he was exploring the possibility of impeachment.

On Monday President Donald Trump told members of the press that Rosselló was a “terrible” governor.

Cumberland Advisors Portfolio Manager Sean Burgess said: “I think all the turmoil and chaos has now prolonged the restructuring process. We already had an increase in uncertainty because of everything going on with the [board]. They still have not been confirmed by the Senate and are running up on the end of their term. Unfortunately all this chaos has taken what was looking to be a somewhat orderly process following the restructuring of COFINA [Puerto Rico Sales Tax Financing Corp.] and turned it on its head.” Cumberland owns insured Puerto Rico bonds.

Feliciano said that as long as the crisis was evolving the local elected government will be paralyzed regarding debt negotiations.

Burgess said the economy was doing reasonably well and the political chaos seemed unlikely to negatively impact it.

University of Illinois Professor Robert Chirinko said, "at this point, whether or not Rosselló resigns is only of modest importance for the economy. Chaos has been created, uncertainty has risen, and the damage has been done. One thing is certain; uncertainty is bad for the economy, as businesses are now going to be reluctant to expand and banks and investors reluctant to provide capital. The political crisis may well exacerbate the existing economic crisis.”

Cure said he was concerned that the political problems might affect the amount of federal aid that the island gets. He cited hurricane relief aid, Medicaid aid, and possible beneficial federal tax proposals as possibly being at stake.

Feliciano said that though the governor has said he won’t resign, he would be forced out of office. “The New Progressive Party cannot contest the 2020 election with Rosselló in [the governor’s office of] Fortaleza.” Because of this Méndez Núñez and other House of Representative members are looking into impeachment. “The rumor is that they have the votes for impeachment.”

“Today, the most likely scenario is for negotiations as to who will be the new governor in exchange for Rosselló's resignation,” Feliciano said. “The stick is the impeachment process. The negotiations are not going to be easy since the only thing that Rosselló might covet is a pardon by his successor while he has nothing to lose by holding on.

“The president of the Senate, [Thomas] Rivera Schatz, is the kingmaker,” Feliciano said. “The new secretary of state needs to be confirmed by the Senate and Rivera Schatz has total control of his caucus. Rivera Schatz loathes the Secretary of Justice [Wanda Vázquez Garced], who is next in line to be governor while there is no secretary of state.”

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