Understanding the Anger Boiling Over in Puerto Rico

(Bloomberg) -- Puerto Rico Governor Ricardo Rossello said he would resign after two weeks of furious protests over a string of profanity-laced text messages in which he disparaged ordinary citizens and political foes. But the texts were merely the spark that set ablaze a store of deep and longstanding discontent on the U.S. territory. Rossello's announcement that he will leave Aug. 2 could plunge the bankrupt island deeper into uncertainty.

1. What started the protests?

Two events precipitated the demonstrations. First, two former officials in Rossello's administration and others were charged in a federal investigation into theft, money laundering and wire fraud. Just a day later, the profane text messages were leaked, showing Rossello and administration officials using misogynistic language, joking about an imaginary shooting of San Juan Mayor Carmen Yulin Cruz, a political rival, and making fun of ordinary Puerto Ricans.

2. Where did the pent-up anger come from?

Islanders have endured a recession that's lasted more than a decade; a steady outflow of residents that's gone on even longer; a series of corruption scandals; a bankruptcy that's stripped the island of control over its budget; and the aftermath of Hurricane Maria in 2017, which left people without electricity for months and is believed to have led to the death of thousands. Residents are also weary of watching education and other services be cut even as former Rossello officials are accused of steering contracts to allies.

3. How did Puerto Rico go bankrupt?

Its economy began to shrink in fiscal 2007 after federal tax breaks for pharmaceutical firms and other multinational companies were phased out. A series of governors borrowed to paper over budget gaps. In 2016, with concerns over solvency growing, Congress passed legislation that became known as Promesa, which created an oversight board and allowed Puerto Rico to use bankruptcy to reduce its obligations. In May 2017, the federal board filed Puerto Rico's bankruptcy, the largest ever in the $3.8 trillion municipal-bond market. Four months later, Maria slammed into the island, destroying its electrical grid and stopping its economy dead.

4. What has the bankruptcy meant to residents?

Puerto Rico has gone through years of austerity measures that have hit hard on an island where almost 45% of residents live below the poverty line. The oversight board has spearheaded cuts to education and reduced pension benefits, stoking simmering resentment about quasi-colonial rule on the island. The board's fiscal plan for the University of Puerto Rico, where 55,000 graduate and undergraduate students are enrolled, calls for cutting operating expenditures by 10% between fiscal 2019 and 2024 as well as further hikes to tuition, according to the plan as of June 5. Rossello's resignation may strengthen the hand of the federal overseers.

5. Where do things stand with the bankruptcy?

Puerto Rico is seeking to reduce nearly $18 billion of bonds tied to the central government. It also needs to mend a pension system on the hook for an estimated $50 billion to current and future retirees. The government-owned electric utility, the main source of power, also wants to restructure $9 billion of debt. The federal oversight board is negotiating with bondholders to reduce billions of debt, but the political crisis will likely delay that. Before the political upheaval, it had expected to give the court a restructuring plan by mid-July. Board lawyer Martin Bienenstock said in court on July 24 that the proposal would be filed “as soon as reasonably possible” but would miss that self-imposed deadline.

6. What's at stake in the leadership standoff?

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 had tried to speed the flow of funds from President Donald Trump's administration. That may be more difficult after the corruption charges. Trump on July 18 tweeted that Congress “foolishly” gave Puerto Rico money.

7. Who was charged with corruption?

Julia Keleher, who was secretary of education from January 2017 until April, and Angela Avila-Marrero, head of the health insurance administration until last month, were indicted, along with the head of BDO Puerto Rico, an accounting firm. Keleher is accused of pressuring her department to direct a contract to a company with which she had a close relationship but which was unqualified to bid, according to the Justice Department. Avila-Marrero is charged with steering contracts to BDO and giving internal information to the company. BDO then subcontracted the work, inflating the cost, according to the Justice Department. Rossello's former treasury secretary, Raul Maldonado, disclosed in June that his department was being investigated for influence peddling, issuance of fake licenses, destruction of documents and improperly accessing taxpayer records. Rossello quickly fired Maldonado.

8. Who's in charge now?

Puerto Rico's 1952 constitution says the island's secretary of state would become governor. That position has been vacant since Luis Rivera Marin left the post amid the chat scandal. Next in line of succession is Secretary of Justice Wanda Vazquez.

9. What do protesters think?

Now that Rossello has resigned, demonstrators have indicated they may target the federal law known as Promesa that permitted the bankruptcy and the oversight board pushing the austerity measures. Demonstrators have used the hashtag #WandaRenuncia, similar to the #RickyRenuncia hashtag used to protest Rossello, meaning she may become a target as well.

The Reference Shelf

A Bloomberg article explaining why the Puerto Rico's federal overseers could become more empowered due to the political chaos on the island.
The Justice Department's press release announcing the indictment against two former Puerto Rico officials.
A Bloomberg article from 2017 about Rossello, the son of a former governor, and his origin story in Puerto Rico.
Trump says his administration did a “great job” after Hurricane Maria.
The Maria-related death toll, broadly defined, is estimated at almost 3,000.
A QuickTake on Puerto Rico's debt woes.
A 2016 Congressional Research Service report on tax policy and U.S. territories.