President Donald Trump dismissed five of seven members of the Puerto Rico Oversight Board without naming replacements, raising questions about how this will affect Puerto Rico's bonds and the Puerto Rico Electric Power Authority bankruptcy.
Trump dismissed chair Arthur Gonzalez and members Cameron McKenzie, Betty Rosa, Juan Sabater and Luis Ubiñas. He left Andrew Biggs and John Nixon on the board. Staff salaries were said to be an issue. The board members serve without pay.
In announcing the dismissals Tuesday, the board said it would "continue to work to fulfill the mandate of PROMESA and in the interest of the people of Puerto Rico."
"Right now the situation has a strange feel, with too many questions," said Advantage Business Consulting President Vicente Feliciano.
He questioned whether some board members can be dismissed "for just cause." If salaries are just cause, he said, "Can you fire five board members and leave two, or would this be arbitrary?"
But the change in members could benefit bondholders, Puerto Rico Attorney John Mudd said. "Now the question is who will be the new appointees and how soon will they be appointed?," he added. "Likely there will be a better deal for PREPA bondholders."
Still Interamerican University of Puerto Rico professor Antonio Fernós Sagebien wondered if this was a political move, or if "the Trump administration is ready to take 'the bull by the horns' and fix whatever needs to be fixed with the [board] and Puerto Rico.".
It is unclear whether the president will nominate "new acolyte members or will he disband the board (allowing an almost empty board) and pressure the team to execute?," Fernós Sagebien asked.
PROMESA requires four members for a quorum.
"This brings a whole new level of uncertainty among investors and stakeholders (particularly at the PREPA efforts)," Fernós Sagebien said. "On the other hand, this is what was needed so the FOMB can implement its full power to perform its duties and execute an exit plan. It is too soon to know."
Feliciano wondered if two members will be able to make decisions, especially with Congress in recess this month, preventing selection of new members.
"Is it worth it to conduct negotiations with bondholders when the policy direction of the new board members is still unknown," Feliciano asked.
No board members had been fired previously, although several have left voluntarily.
Trump's "sudden purge" of the board, "simply creates an opening to stack the board with even more extreme, pro-bondholder appointees who will continue to put the needs of hedge funds over the Puerto Rican people," said U.S. Rep. Nydia Velázquez, D-New York.
Both Nixon and Biggs were nominated by Republicans.
The board was established in summer 2016 following Congress' passage of the Puerto Rico Oversight, Management and Economic Stability Act.
PROMESA indicated that the leaders of the House and Senate would each nominate two members, the chambers' minority leaders would each nominate one member and the final position nominated by the president.
The president would then confirm the nominations. PROMESA specifies which leader would nominate replacements.
It remains to be seen if Trump follows this pattern in approving replacements.
