Puerto Rico Governor’s Resignation Shakes Bankrupt Island

(Bloomberg) -- Puerto Rico Governor Ricardo Rossello resigned late Wednesday after two weeks of furious protests, throwing the leadership of the U.S. commonwealth into uncertainty as it struggles back from a ruinous hurricane and navigates a $74 billion bankruptcy.

Rossello, 40, said in a video on Facebook that he would leave office Aug. 2. He was undone by popular fury after the publication of profane, vengeful and misogynistic text messages among him and his aides that disparaged foes and ordinary residents of the island. The stage was set by corruption investigations that have resulted in the indictment of two former administration officials. But Rossello’s exit plunges the island deeper into uncertainty as it tries to revive a recession-scarred economy, pull itself out of bankruptcy and rebuild from 2017’s devastating Hurricane Maria.

“I was ready to face any challenge, fully understanding that I would prevail in the face of any accusation or legal process,” Rossello said in his pretaped speech. “Despite having the mandate of the people who democratically elected me, today I feel that continuing in this position would impede the success of the past from lasting.”

According to Puerto Rico’s constitution, Justice Secretary Wanda Vazquez will be the next governor, as there is no confirmed secretary of state following an exodus of top officials. Vazquez, 59, has worked in public service more than 30 years, according to spokeswoman Mariana Cobian. But she has been embroiled in the commonwealth’s fractious politics and faced her own scandals.

Rossello “made the right decision, for the good of both his family and for Puerto Rico,” Vazquez said in a statement. “Once the resignation is official, if necessary, I will assume the historic mandate.”

The next election will be in 2020. Rossello’s decision to depart before that vote was an abrupt about-face after he vowed to remain despite the furor set off by the messages disclosed two weeks ago by Puerto Rico’s Center for Investigative Journalism.

Next Targets

Tens of thousands flooded San Juan’s colonial quarter, where they chanted, banged drums and vented. On Wednesday, activists celebrated a people-power victory and said the next targets would be the federal law known as Promesa that permitted the bankruptcy and established a fiscal oversight board pushing for cuts to services and pensions.

“This is the first step toward political democracy,” said Rosa Segui, spokeswoman of the Citizens Victory Movement, begun in March in opposition to the island’s two dominant political parties. “The schemes revealed in the chats question the legitimacy of all the old institutions. Now our demands include the repeal of Promesa and the abolition of the fiscal board.”

The political chaos, however, could strengthen the hand of the federal overseers, who have been tasked with imposing austerity as the commonwealth restructures tens of billions of dollars in debt.

The board has advocated painful measures to mend the island that’s home to 3.2 million U.S. citizens: cuts to primary and secondary education, reduced pension benefits and higher tuition for University of Puerto Rico students. One of Rossello’s leaked texts was a series of middle-finger emojis directed at the board.

As Rossello moved closer to a resignation yesterday, the judge overseeing the bankruptcy, Laura Taylor Swain, imposed a 120-day pause on a series of legal fights between bondholders, government officials and the board. The litigation, she said could cause “chaos that I’m trying to tamp down.”

While Rossello has clashed with the panel over the budget, such conflicts only underscored Puerto Ricans’ feelings of powerlessness and contempt for politicians whose profligacy drove the territory into ruin.

The official currently in line to succeed Rossello -- Vazquez, a member of Rossello’s New Progressive Party -- has herself been enmeshed with old institutions for decades. She started as a lawyer for the Housing Department. As justice secretary, she modernized the department, reorganized the litigation division and was an advocate for sexual-assault victims, according to the Democratic Attorneys General Association.

At Odds

But in 2018, Vazquez faced an ethics investigation over whether she improperly intervened in a case involving a robbery at her daughter and son-in-law’s home. She temporarily stepped down, only to be restored after a court found there was no cause for her arrest.

She’s clashed with the opposition and key members of her own party, including Majority Leader Thomas Rivera Schatz, who has demanded her resignation.

“Vazquez and Rossello are cut from the same cloth,” Representative Manuel Natal, an independent, said Wednesday. “Resigning is not going to end this crisis or calm the people in the streets. If anything, it’s going to intensify it.”

Juan Lara, a University of Puerto Rico economist, said, “We will have a virtually symbolic, largely ceremonial, governor for 17 months.”It will continue a star-crossed stretch. Rossello, who had made unpopular cuts to foster a debt restructuring, was weakened in his last days by the resignation of key staff members. After the disclosure of the text messages, the administration lost its investment officer, press secretary and two fiscal agency heads -- one of whom lasted just five days. The governor’s chief of staff quit Tuesday night. The treasury secretary was fired last month after disclosing a federal corruption investigation into his department.

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The island, which collapsed into bankruptcy in 2017, built up $74 billion in debt and $50 billion of pension liabilities. The pileup happened because lawmakers borrowed instead of finding ways to balance budgets and fund the retirement system. At the same time, investors were eager to buy the commonwealth’s bonds, which are exempt from local, state and federal taxes in all U.S. states. Wall Street greased the path to debacle, reaping more than $900 million in fees to manage $126.6 billion of bond sales since 2000.

Rossello took office two years ago facing the gargantuan task of revitalizing the economy and reining in ballooning debts. He also faced the legacy of his own father, former governor Pedro Rossello, who saddled the island with expensive developments between 1993 and 2001.

Rossello, who has a Ph.D in biomedical engineering from the University of Michigan, moved home in 2011, leaving post-graduate work at Duke University for a professorship at the University of Puerto Rico’s medical campus. He founded a group advocating more autonomy for the island and began to think of running for governor. He took 42% of the vote in 2016, enough to claim victory in a six-way race.

Rossello told Bloomberg News in a 2017 interview that he was wary of “that one loose screw over here or there to sort of make the whole of government collapse.”

If it didn’t collapse Wednesday night, it certainly shook.

“It’s a momentous event for Puerto Rico, the first time a governor has been forced to resign by a popular movement,” said Juan Angel Giusti-Cordero, a University of Puerto Rico history professor. “We have discovered the formula for direct democracy, in a two-party and very controlled electoral system that has little leeway for popular participation. And the politicians realize this will probably not be that last time, which is what really scares them.”

After Rossello’s speech was broadcast, thousands danced, sang and embraced in Old San Juan’s Plaza de Armas.

“This feels like releasing yourself from the mistakes of so many years,” said Luis Ortiz, a 30-year-old from Dorado. “We used to sit back and take it, but we finally stood up.”

--With assistance from Ezra Fieser and Steven Church.

To contact the reporters on this story: Michael Deibert in San Juan at mdeibert@bloomberg.net;Michelle Kaske in New York at mkaske@bloomberg.net;Amanda Albright in New York at aalbright4@bloomberg.net

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, ;Shannon D. Harrington at sharrington6@bloomberg.net, Stephen Merelman, Michael B. Marois

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