Economy Puerto Rico in Bankruptcy: Oversight Board Proposes To Screw Bondholders In Favor of Pensioners

Puerto Rico reaches deal with COFINA bondholders to restructure sales-tax bonds
Alexandra Scaggs | August 8, 2018
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Puerto Rico has reached an agreement with creditors to restructure bonds backed by a portion of its sales tax, according to an announcement from its federal oversight board on Wednesday.

The deal marks a significant step in the Commonwealth’s ongoing bankruptcy process. Specifically, it advances negotiations surrounding Cofina, an entity created to issue bonds secured by a portion of the revenues from Puerto Rico’s sales and use tax.

In a statement, Federal Oversight and Management Board executive director Natalie Jaresko said “this consensual deal with all COFINA bondholders proves both the Board’s and Government’s commitment to reaching consensual agreements to Puerto Rico’s debt wherever possible.”

The oversight board also said the restructuring will save the island approximately $17.5bn in debt-service costs. The agreement follows the broad outline of a preliminary bondholder agreement reached in June, and allocates nearly 54 per cent of future sales-tax revenues to bondholders.

If the plan is approved in the fourth quarter of this year, senior bondholders — including Whitebox Advisors, GoldenTree Asset Management and Tilden Park Capital Management — will recover 95 cents per dollar of face value, and subordinated bondholders will recover 58 cents. A speedy resolution would provide recoveries of 93 cents and 56 cents, respectively. The Commonwealth is also paying a 2-per-cent fee to a group of mediation participants.


More details can be found in public documents from the Oversight Board.

https://www.ft.com/content/0605c602-9b5b-11e8-ab77-f854c65a4465
 
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For Puerto Ricans, a first step toward debt relief
By Andy Uhler | November 07, 2018

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A U.S. judge has approved a restructuring deal to address some of Puerto Rico’s massive debt. Not including pension obligations, the island owes creditors at least $72 billion. This particular deal addresses just $4 billion, but it could pave the way for the island to start emerging from years of loan defaults and fiscal insolvency.

Puerto Rico’s not a state. And as a territory, it doesn’t have the ability to file for bankruptcy. This consensual debt restructuring agreement is a deal that was worked out between Puerto Rico’s Government Development Bank and its various creditors: hedge funds, municipalities and local credit unions.

This deal is an important first step in restructuring the island's debt, said Cate Long, founder of a debt research firm on the island, Puerto Rico Clearinghouse.

“It partitions a very complex process into individual pieces that can be resolved without all the other competing noise around it,” Long said.

It's another step in the process set in motion by the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), a law passed two years ago to combat the Puerto Rican government debt crisis.

Long pointed out that $4 billion out of the $72 billion is under 5 percent, but because this agreement restructures the Government Development Bank, which oversaw the island's debt transactions, Puerto Ricans on the island will directly see the benefit of this deal.

“There were many Puerto Rican savers that had exposure through their credit unions," she said. "So this debt deal ensures something. They won’t get it all, they’re only getting about 55 percent recovery, but that’s certainly better than zero.”

José Caraballo-Cueto, an economist at the University of Puerto Rico, said contractors and others rebuilding the island have cash right now because of federal recovery money after Hurricane Maria. They’re paying taxes to the Puerto Rican government which is helping refill the island’s coffers that the government can use to start repaying the debt. But he’s worried about what happens when that money dries up.

“If we don’t look for sustainable agreements, that is going to deepen this economic crisis and we’re not going to see an economic recovery for many years,” he said.

Caraballo-Cueto said without real economic growth, beyond hurricane recovery, the cycle of debt on the island is bound to continue.

https://www.marketplace.org/2018/11...ruptcy-its-consensual-debt-restructuring-deal
 
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Puerto Rican's need to realize it's their own leadership, and the insane levels of corruption and pocket lining that brought them to this.

They don't do anything about it, because they fall for their corrupt leaderships blaming of "the others"
 
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Senators Warren, Sanders, Gillibrand, Markey, Harris introduce bill that would slash Puerto Rico's $74 Billion debt

By Dawn Giel | 25 July 2018

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Sens. Elizabeth Warren and Bernie Sanders on Wednesday introduced a bill that would essentially wipe out tens of billions of dollars of Puerto Rico’s $73 billion in outstanding debt.

The proposal, entitled the “U.S. Territorial Relief Act of 2018,” counts Democratic Sens. Kirsten Gillibrand of New York, Edward J. Markey of Massachusetts and Kamala Harris of California as co-sponsors. The bill “provides an avenue to comprehensive debt relief for Puerto Rico and other hurricane-ravaged U.S. territories so that they have a chance to get back on their feet,” according to the sponsors.

"Greedy Wall Street vulture funds must not be allowed to reap huge profits off the suffering and misery of the Puerto Rican people for a second longer. It is time to end Wall Street's stranglehold on Puerto Rico's future, return control of the island to the people of Puerto Rico and give the territory the debt relief it so desperately needs to rebuild with dignity," said Sanders, I-Vt.

"Puerto Rico was already being squeezed before Hurricane Maria hit and will now have to rebuild under the weight of crushing debt. Our bill will give territories that have suffered an extraordinary crisis a route to comprehensive debt relief and a chance to get back on their feet," said Warren, D-Mass. "Disaster funding and the other resources in struggling territories' budgets must not go to Wall Street vulture funds who snapped up their debt. Congress should pass this legislation right away — our fellow U.S. citizens are counting on us."

The legislation would give Puerto Rico and other U.S. territories the choice to terminate nonpension debt loads if they meet “certain stringent criteria,” according to the bill.

Rep. Nydia Velazquez, D-N.Y., is planning to introduce a companion bill in the House in September.

"After Maria, Puerto Rico needs every tool possible to recover physically and economically. This legislation provides another path for the Island to get back on its feet and begin the journey toward a brighter future,” she said in a statement.

A U.S. territory would have to meet two of three criteria in order to qualify for the debt relief: be the recipient of major federal disaster assistance, have a population decline of 5 percent over 10 years or have per-capita debt exceeding $15,000.

Puerto Rico would almost certainly meet these requirements if the bill were to be signed into law.

The bankrupt island's outstanding bond indebtedness is roughly $73 billion, or nearly $17,000 debt per capita, before Hurricane Maria struck the island in September. The Commonwealth has also projected a cumulative decline in population of 19.4 percent by 2022, according to the island’s fiscal plan.

If Puerto Rico chooses to terminate its debt within three years of the bill being signed into law, $15 billion in federal funds would become available to some of the island’s residents and other creditors whose holdings were terminated.

The Territorial Relief Act of 2018 would use a special master to oversee the $15 billion in the “Puerto Rico Debt Restructuring Compensation Fund.”

Some $7.5 billion would be allocated for Puerto Rican creditors who held the terminated debt, including the island’s residents, banks and credit unions that did business solely in Puerto Rico, the island’s unions and public pension plans, businesses with a principal place of business on Puerto Rico, and anyone else the special master identifies.

Another $7.5 billion would be allocated for creditors on the mainland U.S. who held the terminated debt, including individual investors, trade unions, pension plans, open-end mutual funds that pledge to waive the manager’s fee for any compensation received, and anyone else the special master identifies, according to the bill.

The bill would exclude “hedge funds and their investors, bond insurers, many financial firms with consolidated assets greater than $2 billion, and repo or swaps investors from the distribution,” according to the summary of the legislation.



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Take that! Investors Capitalist Pigs! That's what you get for investing in a junk bond with sky-high interest rates and sales-tax guarantees!

On the other hand: Near-total debt forgiveness, with no attached demand/conditions on political and economic reforms to fix the underlying issues plaguing the island for decades now. That oughtta teach 'em how to be responsible, finally!

Lastly, it's important to point out that of only $15 Billion of Puerto Rico's municipal bonds are held by large Hedge Funds. Another $11 Billion are held by Mutual Funds representing pension funds, unions, and alike. The rest are held by individual investors. That means more than 75% of Puerto Rico's outstanding debt are owed to your regular everyday Americans!

Try to keep that fact in mind before you are incited to bring out your pitch-fork to hunt down them evil "Greedy Vultures", for "they" just might be your friendly next-door neighbors who invested their life savings into the bonds offered by the Puerto Rican government.

Sorry. Don't care.

When bankers get taught about responsibility for the GFC, I will become interested in teaching the PR people a lesson.

Do business with criminals, aka bankers, don't be surprised when you get burned.
 
Puerto Rico oversight board asks court to invalidate $6 billion General Obligation bonds
By Luis Valentin Ortiz | January 14, 2019

SAN JUAN (Reuters) - Puerto Rico’s federally appointed fiscal oversight board announced late Monday that it will seek to invalidate in federal court more than $6 billion of general obligation (GO) bonds.

The action is aimed at three GO debt issues sold by the U.S. territory in 2012 and 2014 that were already in default. The board said in a statement that the debt had been issued “in clear violation of the Puerto Rico Constitution and should be declared null and void.”

The oversight board and Puerto Rico’s unsecured creditors committee jointly asked U.S. Judge Laura Taylor Swain, who oversees the island’s bankruptcy cases, to wipe out more than $6 billion of GO debt by disallowing any claims filed to date by owners of these bonds.

With roughly $120 billion in debt and pension liabilities, Puerto Rico and four of its public corporations commenced bankruptcy proceedings in U.S. court in May 2017, under Title III of the so-called PROMESA Act.

A 600-page report commissioned by the oversight board released last August pointed to potential causes of actions over Puerto Rico’s debt crisis, including potential violations of the island’s constitutional debt limit.

Monday’s announcement is the first major action taken by the fiscal panel after considering potential claims arising from the report.

Some 2014 bonds due in 2035 with an 8 percent coupon traded earlier on Monday at 53.5 cents on the dollar.

https://www.reuters.com/article/us-...o-invalidate-6-billion-go-bonds-idUSKCN1P90AH
 
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Would Philly, N.J. take a cue from Puerto Rico’s plan to not pay $6 billion in bonds?
Joseph N. DiStefano | February 26, 2019

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When the United States set up Puerto Rico as our somewhat self-governing Caribbean island colony, things got lost in translation. Literally.

A difference between the English and Spanish versions of Puerto Rico’s constitution may cost U.S. investors in Puerto Rico tax-free bonds billions of dollars, as federal Judge Laura Taylor Swain and a seven-member board chosen by Congress and the president work to resolve more billions in unpaid debt before this summer’s deadline.

Also unclear: Is this mess a sign that the Wall Street bond-sales and credit-reporting industry failed to mend its ways after the late 2000s mortgage crisis? Will it become a precedent for debt-laden U.S. states to escape some of their own towering debts, such as unfunded pensions? Or is it just the latest costly misunderstanding in the sad history of colonial administration?

Last month, the Financial Oversight and Management Board for Puerto Rico said it wasn’t going to repay $6 billion in bonds that Puerto Rico sold in 2012 and 2014 because they were “unconstitutional.”

The board has been fighting in court to trim billions from other bond paybacks, backed by taxes, tolls, and utility payments, for example. That’s so the island government can keep pensioners eating (though pensions are also being trimmed). Officials also need to fix island schools and close others — Puerto Rico’s school population has fallen — and replace electric stations and other public works wrecked by Hurricane Maria, poor planning, and neglect.

But the 2012 and 2014 general-obligation bonds, the last major issues sold by agencies on the island to U.S. investors before Puerto Rico began defaulting on its payments, are the only debts that the board has repudiated completely, despite the fact that they were blessed by lawyers, bankers, and credit-rating agencies, from San Juan to Wall Street.

The lawyers who first approved the bond sales appear to have relied on “the Spanish version of the Constitution adopted by the Puerto Rico assembly,” which allows island public agencies to spend as much as the government raises in “recursos totales” — aka "total resources," including borrowed money and tax revenues, according to the 62-page objection to the bonds filed for the board and other parties last month.

The lawyers concede that’s exactly what the Puerto Rican constitution-framers meant to say: Spending can equal revenues plus debt.

But “the English Version of the Commonwealth Constitution approved by the U.S. Congress" limits the Puerto Rico government to spend no more than its “total revenues," excluding debt, the lawyers added. And that means they can’t borrow more unless the budget is balanced.

And it’s the English-language Constitution that is valid in U.S. courts, the lawyers concluded, leaving hedge-fund managers or bond-coupon-clippers who expected those public bonds would get paid like other debt, to twist in the proverbial Caribbean breeze. (They have other arguments that would also get Puerto Rico off the hook from paying those bonds.)

There are people associated with the University of Pennsylvania on both sides of this fight, underscoring how many of Puerto Rico’s problems, and proposed solutions, are Made in the U.S.A.

The board that seeks to trim Puerto Rico’s out-of-control debt so it can borrow at more sustainable levels in the future includes Penn Law professor David S. Skeel, a bankruptcy expert.

Top creditors seeking top-dollar payouts include Aurelius Investment LLC, a $3 billion asset New York firm, run by Mark Brodsky, a Penn grad, whose previous boss famously seized an Argentinian Navy ship to collect on that country’s defaulted debt; and Autonomy Americas LLC, a $5 billion New York fund run by Robert Gibbons, a Penn Wharton grad.

There were plenty of warnings. “I passed on those deals. I said it was insane,” said Delaware Bay Co. president Gary Hindes, founder of the Fallen Angels Fund, which invests in distressed, often government-backed securities. “There was no way they could pay those bonds off.”

Yet some of the biggest Wall Street firms — Morgan Stanley and Barclays, among others — were pleased to work with their Puerto Rico counterparts as bond trustees and underwriters on those deals, now deemed “unconstitutional," according to the 600-page Final Investigative Report prepared for the boardlast August.

If investors were sold $6 billion in bonds that were issued illegally, shouldn’t someone go to prison, or at least get fined by the SEC?

The SEC investigated but decided “not to recommend enforcement actions,” Reuters reported last year. We don’t know why, so far.

Judge Taylor Swain has approved the board’s broad plans. But there are still legal challenges to the board’s positions — and its very appointment — by hedge funds that bought Puerto Rico debt cheap and hope to squeeze more dollars from it. There are also political challenges from Puerto Rican patriots, who don’t see why any of the island’s limited tax revenues should be going to mainland investors who should have known better.

If the board gets its way, will Puerto Rico set a precedent for New Jersey and other debt-laden states? “People ask, ‘Is this a dress rehearsal’ ” for allowing states to declare bankruptcy? "I think it’s unlikely,” Skeel said.

Even if the Puerto Rico settlement shows that financial reorganization in bankruptcy can work for state-sized communities, the political obstacles are enormous. Democrats are skeptical because it could be used to slash pension benefits and interfere with collective bargaining agreements. Republicans are "skeptical because they think it will be used to restructure debt,” hurting investors, he added.

But that’s what bankruptcy courts and appointed overseers are designed to do: force fiscally challenged Americans, including our politicians, to balance the dollars they bring in, with the dollars they spend.

https://www.philly.com/business/phi...holders-philadelphia-new-jersey-20190226.html
 
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Unless we want debt markets to change radically, all debt holders need to treated exactly the same unless there is a difference in priority as established by bankruptcy law.

Debt market is certainly changing with the latest development regarding the $6 Billion in General Obligation bonds that Puerto Rico is trying to welch.

Municipal bonds are now considered to be dangerous by many investors, and their interest rates will skyrocket as the result. Cities across the country are going to have a much tougher time raising money in the future.

Lengthy read, but this is a wealth of info for anyone who are interested in the financial market:


How Puerto Rico’s financial storm is washing over the mainland
By Jane Sasseen | March 8, 2019

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Long before Maria ripped it apart physically, a financial storm devastated the Caribbean island. Faced with a collapsing economy, $72 billion in debt, and overwhelming pension liabilities, it was forced into bankruptcy in mid-2017.

Ever since, and especially after Maria, the island and its many creditors have been locked in nasty, sprawling fights over how much money it actually has and who it belongs to.

With tens of billions of dollars at stake, the bare-knuckles brawl has also roiled the massive municipal bond market back on the mainland. The fight over Puerto Rico’s debt raises questions about how safe it is to buy the bonds of other financially troubled cities and states such as Chicago, Connecticut, New Jersey, and Illinois.

Or as Adam Stern, co-head of research at bond market specialists Breckenridge Capital Advisors, puts it, what happens in Puerto Rico no longer stays in Puerto Rico.

The reason: municipal bonds finance two-thirds of all infrastructure across the US. Cities, states, and public agencies all turn to the “muni” market for funds to build schools, bridges, sewer systems, and much else besides.

The fallout from Puerto Rico’s bankruptcy threatens to make it harder, and costlier, to raise the money needed for such projects. Put simply, that means taxes could go up.

“If you give the government the ability to just cancel debt when it’s convenient, how will creditors find the confidence to lend to other municipalities in the future that might need debt to finance a new school building or a new road?” asks Dora Lee, director of research at Belle Haven Investments, which owns Puerto Rican bonds. “It would definitely lead to higher interest rates, and higher rates on municipal bonds means higher taxes for taxpayers who live in those municipalities.”

Coming on the heels of smaller, though no less painful, municipal bankruptcies in Detroit, Stockton, California, and Jefferson County, Alabama over the past decade, the impact is multiplied.

Last year, mutual fund giant Franklin Templeton announced it would no longer invest in bonds issued by Illinois, Chicago, or the city’s public schools. The firm had been among Puerto Rico’s largest bondholders before the territory defaulted. Its fund directors warned that the municipal bond market has undergone a dramatic shift, as borrowers have become far more willing to stiff their bondholders when they run into trouble than in the past.

What’s more, they believe more cities and states will have difficulty meeting their commitments in the years ahead. And when the choice comes down to funding public pensions, keeping up government services, or paying back bondholders, bondholders are increasingly likely to lose out. This shift has left many investors wary of the promises being made by municipalities under financial distress, or that could potentially become so.

“There are thousands of issuers in the market,” says Stern of Breckenridge Capital. “If an issuer starts to exhibit behavior you don’t like, there are usually plenty of other choices.”


Read the rest at:
https://qz.com/1557486/puerto-ricos-bond-saga-is-messing-up-mainland-municipal-markets/
 
Debt market is certainly changing with the latest development regarding the $6 Billion in General Obligation bonds that Puerto Rico is trying to welch.

Municipal bonds are now considered to be dangerous by many investors, and their interest rates will skyrocket as the result. Cities across the country are going to have a much tougher time raising money in the future.

Lengthy read, but this is a wealth of info for anyone who are interested in the financial market:


How Puerto Rico’s financial storm is washing over the mainland
By Jane Sasseen | March 8, 2019

RTS1DZ3B-e1550864244846.jpg

Long before Maria ripped it apart physically, a financial storm devastated the Caribbean island. Faced with a collapsing economy, $72 billion in debt, and overwhelming pension liabilities, it was forced into bankruptcy in mid-2017.

Ever since, and especially after Maria, the island and its many creditors have been locked in nasty, sprawling fights over how much money it actually has and who it belongs to.

With tens of billions of dollars at stake, the bare-knuckles brawl has also roiled the massive municipal bond market back on the mainland. The fight over Puerto Rico’s debt raises questions about how safe it is to buy the bonds of other financially troubled cities and states such as Chicago, Connecticut, New Jersey, and Illinois.

Or as Adam Stern, co-head of research at bond market specialists Breckenridge Capital Advisors, puts it, what happens in Puerto Rico no longer stays in Puerto Rico.

The reason: municipal bonds finance two-thirds of all infrastructure across the US. Cities, states, and public agencies all turn to the “muni” market for funds to build schools, bridges, sewer systems, and much else besides.

The fallout from Puerto Rico’s bankruptcy threatens to make it harder, and costlier, to raise the money needed for such projects. Put simply, that means taxes could go up.

“If you give the government the ability to just cancel debt when it’s convenient, how will creditors find the confidence to lend to other municipalities in the future that might need debt to finance a new school building or a new road?” asks Dora Lee, director of research at Belle Haven Investments, which owns Puerto Rican bonds. “It would definitely lead to higher interest rates, and higher rates on municipal bonds means higher taxes for taxpayers who live in those municipalities.”

Coming on the heels of smaller, though no less painful, municipal bankruptcies in Detroit, Stockton, California, and Jefferson County, Alabama over the past decade, the impact is multiplied.

Last year, mutual fund giant Franklin Templeton announced it would no longer invest in bonds issued by Illinois, Chicago, or the city’s public schools. The firm had been among Puerto Rico’s largest bondholders before the territory defaulted. Its fund directors warned that the municipal bond market has undergone a dramatic shift, as borrowers have become far more willing to stiff their bondholders when they run into trouble than in the past.

What’s more, they believe more cities and states will have difficulty meeting their commitments in the years ahead. And when the choice comes down to funding public pensions, keeping up government services, or paying back bondholders, bondholders are increasingly likely to lose out. This shift has left many investors wary of the promises being made by municipalities under financial distress, or that could potentially become so.

“There are thousands of issuers in the market,” says Stern of Breckenridge Capital. “If an issuer starts to exhibit behavior you don’t like, there are usually plenty of other choices.”


Read the rest at:
https://qz.com/1557486/puerto-ricos-bond-saga-is-messing-up-mainland-municipal-markets/


Yeah this does not surprise me at all.

At least with the other municipal BKs you could argue that the investors knew the risks and so does the municipalities. The repricing of debt is a normal reaction to risk resulting from the cities behavior. But with PR when people advocate just making up the rules as they go, well it adds a new level of risk pricing that has to go into the mix. You know have to factor in how you are going to be treated or how even someone who you sell the debt to, will be treated, into pricing.
 
Debt market is certainly changing with the latest development regarding the $6 Billion in General Obligation bonds that Puerto Rico is trying to welch.

Municipal bonds are now considered to be dangerous by many investors, and their interest rates will skyrocket as the result. Cities across the country are going to have a much tougher time raising money in the future.

Lengthy read, but this is a wealth of info for anyone who are interested in the financial market:


How Puerto Rico’s financial storm is washing over the mainland
By Jane Sasseen | March 8, 2019

RTS1DZ3B-e1550864244846.jpg

Long before Maria ripped it apart physically, a financial storm devastated the Caribbean island. Faced with a collapsing economy, $72 billion in debt, and overwhelming pension liabilities, it was forced into bankruptcy in mid-2017.

Ever since, and especially after Maria, the island and its many creditors have been locked in nasty, sprawling fights over how much money it actually has and who it belongs to.

With tens of billions of dollars at stake, the bare-knuckles brawl has also roiled the massive municipal bond market back on the mainland. The fight over Puerto Rico’s debt raises questions about how safe it is to buy the bonds of other financially troubled cities and states such as Chicago, Connecticut, New Jersey, and Illinois.

Or as Adam Stern, co-head of research at bond market specialists Breckenridge Capital Advisors, puts it, what happens in Puerto Rico no longer stays in Puerto Rico.

The reason: municipal bonds finance two-thirds of all infrastructure across the US. Cities, states, and public agencies all turn to the “muni” market for funds to build schools, bridges, sewer systems, and much else besides.

The fallout from Puerto Rico’s bankruptcy threatens to make it harder, and costlier, to raise the money needed for such projects. Put simply, that means taxes could go up.

“If you give the government the ability to just cancel debt when it’s convenient, how will creditors find the confidence to lend to other municipalities in the future that might need debt to finance a new school building or a new road?” asks Dora Lee, director of research at Belle Haven Investments, which owns Puerto Rican bonds. “It would definitely lead to higher interest rates, and higher rates on municipal bonds means higher taxes for taxpayers who live in those municipalities.”

Coming on the heels of smaller, though no less painful, municipal bankruptcies in Detroit, Stockton, California, and Jefferson County, Alabama over the past decade, the impact is multiplied.

Last year, mutual fund giant Franklin Templeton announced it would no longer invest in bonds issued by Illinois, Chicago, or the city’s public schools. The firm had been among Puerto Rico’s largest bondholders before the territory defaulted. Its fund directors warned that the municipal bond market has undergone a dramatic shift, as borrowers have become far more willing to stiff their bondholders when they run into trouble than in the past.

What’s more, they believe more cities and states will have difficulty meeting their commitments in the years ahead. And when the choice comes down to funding public pensions, keeping up government services, or paying back bondholders, bondholders are increasingly likely to lose out. This shift has left many investors wary of the promises being made by municipalities under financial distress, or that could potentially become so.

“There are thousands of issuers in the market,” says Stern of Breckenridge Capital. “If an issuer starts to exhibit behavior you don’t like, there are usually plenty of other choices.”


Read the rest at:
https://qz.com/1557486/puerto-ricos-bond-saga-is-messing-up-mainland-municipal-markets/

Thought this might ntwreat you

https://www.wsj.com/articles/invest...er-first-chapter-of-restructuring-11553169603
 
A lot of buzzwords and campaigning materials in the announcement instead of hard numbers, so I don't know what are revised in the U.S. Territorial Relief Act of 2019 compare to the previously announced (and failed) U.S. Territorial Relief Act of 2018 in the OP.

Thread will be updated once the details are clear.


Sen. Warren unveils plan to restructure Puerto Rico debt

By Rafael Bernal - 05/02/19

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Sen. Elizabeth Warren (D-Mass.), a Democratic presidential contender, unveiled a plan Thursday to restructure Puerto Rico's debt, as the U.S. territory struggles to rebuild its economy.

Under her proposal, territories like Puerto Rico would be allowed to "terminate" their debt under certain criteria like a natural disaster, major population loss, or if they are "staggering under overwhelming debt."

The plan, which was unveiled in a post on Medium, would also set up a fund to compensate certain holders of Puerto Rico debt, such as pension funds, island residents, individual investors and credit unions.

But Warren, a strong critic of Wall Street, added that "vulture funds and bond insurers would not get a penny from this fund."


"Comprehensive debt relief is essential to Puerto Rico’s recovery. It is the only way for the island to get out from under the thumb of Wall Street speculators," Warren wrote in her post. "It is the only way to stabilize the island and allow its people to reclaim their future."

Warren added that under her proposal, which she plans to reintroduce in the Senate as the "U.S. Territorial Relief Act," Puerto Rico would also need to undertake an independent audit of its debt.

Warren said her proposal was intended to give Puerto Rico the same recourse to lowering debt that is provided to companies and other U.S. cities.

"If Puerto Rico were a big company in this kind of financial trouble, it could file for bankruptcy, pay some of its debts, discharge the rest, then start rebuilding. If Puerto Rico were an American city in this kind of financial trouble, it could do the same," she said.

But Warren avoided touching on the issue of Puerto Rico's territorial status, focusing instead on the island's financial woes.

Puerto Rico, in 2017, filed a form of bankruptcy codified in the Puerto Rico Oversight, Management, and Economic Stability (Promesa) Act, a law passed by Congress in 2016 that provides for federal oversight of Puerto Rico's unmanageable debt.

The control board that manages that debt, Warren argued in her post, has "slashed basic government services throughout the island and imperiled Puerto Ricans’ pensions, while generously helping out the Wall Street firms that hold Puerto Rico’s debt."

With a debt estimate of more than $70 billion, Puerto Rico's was the largest government bankruptcy in U.S. history, overshadowing Detroit's 2013 filing to restructure nearly $20 billion in debt.

"But Puerto Rico isn’t a corporation or a city," wrote Warren. "Because of its unique status, those legal options aren’t available — and so it’s caught in a terrible position, battered by natural disasters with no clear path to recovery."

Puerto Rico was hit by Hurricane Maria in September 2017, which devastated the island's already teetering economy.

Warren's plan comes as Puerto Rico Gov. Ricardo Rosselló (D) and members of the Promesa-imposed Fiscal Control Board testified Thursday before the Natural Resources Committee — the committee of jurisdiction on territorial affairs — on Promesa's record.

Rosselló, who's been critical of the austerity measures imposed by Promesa, pleaded with the committee to allow the local government to prioritize social programs and pension payments over debt payments.

"What we're saying is let us define what those priorities are, and one of those priorities would be paying those pensions," said Rosselló.

"I know that there will be differences, but if we have a limited budget, at least let us have a discussion on the policy basis of it," he added.

But Rosselló doubled down on his core goal to achieve statehood for Puerto Rico, which he says would obviate many of the financial inequalities that have plagued the island.

https://thehill.com/homenews/campaign/441858-warren-unveils-plan-to-restructure-puerto-rico-plan
 
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Puerto Rico Seeks to Have $9 Billion in Debt Ruled Unconstitutional
By Mary Williams Walsh | May 2, 2019

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A May Day protest on Wednesday in San Juan, P.R., against the board overseeing the island’s response to its debt crisis.

The government oversight board leading Puerto Rico through its $123 billion debt crisis sued dozens of banks and financial firms on Thursday, saying that they had helped the island issue $9 billion of debt illegally, and that the people of Puerto Rico should not have to repay it.

The board said the debt should be voided because it exceeded the territory’s constitutional debt limit, and it added that Puerto Rico would try to recover hundreds of millions of dollars in interest and principal payments that it has already made.

The board was joined in the litigation by the official committee representing Puerto Rico’s unsecured creditors in the territory’s bankruptcy-like legal proceedings. Both plaintiffs said they understood they were making an unusual request, but asserted that no other approach would be legal or fair.

“The laws of Puerto Rico limit government borrowing authority for a reason: to prevent the government and its financiers from hitching the Commonwealth and its instrumentalities, as well as taxpayers and legitimate creditors, to a level of debt that cannot be repaid without sacrificing services necessary to maintain the health, safety and welfare of Puerto Rico and its people,” the plaintiffs said in one of several complaints.

The lawsuit names as defendants a large number of major financial institutions just as the oversight board is trying to work with them to restructure billions of dollars in debt.

Matt Fabian, a partner at Municipal Market Analytics, a research firm that is not involved in the litigation, said he thought the lawsuits would make it harder for Puerto Rico to negotiate with its creditors. In some cases, he said, the institutions being sued were the same ones that Puerto Rico would seek assistance from in the future, once the current restructuring is finished and the island needs to issue new debt.

Citibank, one defendant, is working as an adviser to the oversight board on the debt restructuring. “How do you sue?” Mr. Fabian asked. “It’s like going in for a root canal and suing the dentist while you’re still in the chair.”

Municipal bonds are very seldom voided, and there is no precedent for such a step under Promesa, the bankruptcy-like law enacted by Congress to handle Puerto Rico’s debt crisis. As a territory, the island is legally barred from using Chapter 9 municipal bankruptcy to restructure, and Promesa has not been used before. But such maneuvers have been employed in other municipal bankruptcies.

The complaints named a number of financial-services firms that underwrote the bonds, because the board and creditor group said the firms should have understood that the bonds would have put the territory beyond its debt limit. The defendants include Citigroup, Goldman Sachs and JPMorgan Chase and a number of other major banks. Citigroup and Goldman declined to comment, as did JPMorgan.

Also named in the complaints were firms involved in selling Puerto Rico financial instruments meant to protect the territory in the event the interest rates on the bonds rose.

The complaints also named the law firm Sidley Austin as a defendant, claiming that it had improperly determined that the bonds were in compliance with the debt limit. The firm said the complaint, which seeks the return of fees paid to it, was “untimely and entirely without merit,” said Linton Childs, the firm’s general counsel.

Advocacy groups have been calling for months for at least some of Puerto Rico’s debt to be voided, but a legal analysis commissioned by the board said it would be difficult to do, in part because much of the debt was issued years ago and the statute of limitations would have run out. The oversight board had asked the court for more time to consider its options, but the court said no, leaving Friday as the deadline for any possible lawsuits.

The actions of the oversight board, and the details of the restructuring, have attracted the attention of members of Congress. The House Natural Resources Committee, which has oversight of United States territories and drafted Promesa, heard from the board’s executive director and the territory’s governor in a hearing on Thursday.

Ricardo Rosselló, Puerto Rico’s governor and a critic of the board, told lawmakers that it had not achieved its objectives and had overstepped its bounds. The board’s executive director, Natalie Jaresko, defended the board and said 30 percent of the island’s debt had already been restructured and discussed its claims concerning the validity of some of the bonds.

The lawsuits center on Puerto Rico’s constitutional debt limit, which establishes a ceiling for the amount of general-obligation bonds the island’s government can issue. The limit does not apply to other types of debt, however, and the lawsuits argue that the banks helped Puerto Rico’s government design and market bonds that appeared to be something other than general-obligation bonds, thereby circumventing the limit and, ultimately, making the island’s insolvency much worse.

For example, the complaint said, bonds issued by Puerto Rico’s Public Buildings Authority to build and maintain public schools were to be repaid by rental payments on the buildings. That made them seem like revenue bonds, which are not counted toward the debt ceiling. But in fact, the rent payments were made by the government’s general fund — the same source of money that repays the general-obligation bonds. For that reason, the school-construction bonds should have been counted as general-obligation bonds, the lawsuit says.

Had all of the government’s bonds been properly classified, it would have been clear that Puerto Rico had exceeded its constitutional debt limit, the lawsuit said.

In addition to the $4 billion of bonds issued by the Public Buildings Authority, the lawsuits said general-obligation bonds issued in 2011 and 2014 exceeded the debt ceiling and should be voided.

“It would not be equitable, or legal, to ask the taxpayers and legitimate creditors or Puerto Rico to bear a burden from which they are protected by their own Constitution and statutes,” one complaint said. “That burden should instead be shouldered by those who, knowing of Puerto Rico’s increasingly dire financial crisis, chose to lend to Puerto Rico, or purchase Puerto Rico debt that carried high effective interest rates as a reflection of risk.”

https://www.nytimes.com/2019/05/02/business/puerto-rico-debt-banks.html
 
FBI Arrests Former Top Puerto Rico Officials In Government Corruption Scandal
July 11, 2019

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Federal agents escort former Puerto Rico Health Insurance Administration head Ángela Ávila-Marrero, who was arrested on Wednesday as part of a corruption investigation that resulted in an indictment against six defendants.

U.S. authorities have unsealed a corruption indictment against two former top officials in Puerto Rico for directing some $15.5 million in contracts to favored businesses, allegedly edging out other firms for the lucrative government work despite allegations of being unqualified.

The two former Puerto Rico leaders — Julia Keleher, who was the secretary of the island's department of education before stepping down in April, and Ángela Ávila-Marrero, who led Puerto Rico's Health Insurance Administration until last month — were arrested by FBI agents on Wednesday.

Prosecutors wrote in the indictment that the conspiracy involved the two former public officials giving four associates an inside track to contracts.

Once secured, authorities say the contractors benefited by paying "unauthorized commissions" to other individuals to lobby government for more contracts, a dynamic authorities described as "a corrupt bidding process."

At a press conference in San Juan, U.S. Attorney for Puerto Rico Rosa Emilia Rodríguez-Vélez elaborated.

"Both Keleher and Ávila-Marrero took advantage of their privileged positions as agency chiefs. They defrauded the U.S. and Puerto Rican governments," Rodríguez said.

Federal authorities also arrested and charged Glenda Ponce-Mendoza and Mayra Ponce-Mendoza, who are sisters who worked as education consultants; Fernando Scherrer Caillet, an executive at the auditing firm BDO; and consultant Alberto Velázquez Piñol. The 32-count indictment accuses the defendants of charges including wire fraud, theft and money laundering.

The charges related to steering lucrative government contracts to business friends come at a politically sensitive time for the island's government, which has been trying to project a polished and competent image of themselves to Congress as island leadership expect to receive billions of dollars in recovery aid to help rebuild after Hurricane Maria.

The approved aid was delayed after Washington lawmakers squabbled about how much the island deserves after the hurricane killed nearly 3,000 people and caused billions of dollars in damage.

Word of the charges rocked the political establishment in Puerto Rico and cut short the European vacation of Gov. Ricardo Rosselló, who immediately booked a flight home.

And although Rosselló was not directly implicated in the criminal probe, Arizona Rep. Raúl Grijalva, who is the chair of the Natural Resources Committee that oversees Puerto Rico, called on Rosselló to resign.

"The Puerto Rican people deserve a government that takes public service seriously, that's transparent and accountable, and that doesn't let this happen in the first place," Grijalva said in a statement.

Félix Córdova, a political analyst who teaches at the University of Puerto Rico, said the corruption scandal reveals a troubling reality on the island.

"No one is proud of the corruption. It has demoralized Puerto Ricans," Córdova told NPR.

And yet, Córdova said many island residents were not entirely surprised by the charges.

Faced with a dismal economy and budget cuts that have eliminated some basic services, government has hired private companies to carry out health care and educational services.

Privatizing public services introduces a profit motive, said Córdova, who argues that such a scenario makes conditions ripe for corruption.

Trump has said that Puerto Rico has received more federal aid than other states hit with natural disasters, such as Texas and Florida, and has repeatedly questioned sending relief aid to the island over fears that government leaders would mismanage the funds.

"The people of Puerto Rico deserve true leadership and Federal disaster support that helps them the most — not the politicians who have used disaster spending as a political platform to further their own agendas," according to a White House statement released in April.

 
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US lawmaker who oversees Puerto Rico calls for governor to resign after 6 arrested on corruption charges
William Cummings | USA TODAY July 11, 2019

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WASHINGTON – The Democratic lawmaker who chairs the House committee that oversees Puerto Rico called on the island's governor to step down after six people, including Puerto Rico's former secretary of education, were arrested Wednesday on federal fraud charges.

Former Education Secretary Julia Keleher and Ángela Ávila-Marrero, former head of Puerto Rico's Health Insurance Administration, were arrested on 32 counts of fraud, theft and money laundering, along with two businessmen and two sisters who worked as education contractors.

In the indictment, prosecutors allege that Keleher steered government contracts "through a corrupt bidding process" to an unqualified firm run by Glenda Ponce-Mendoza and Mayra Ponce-Mendoza, with whom she had a "close relationship."

"It was alleged that the defendants engaged in a public corruption campaign and profited at the expense of the Puerto Rican citizens and students," said Neil Sanchez, special agent in charge of the U.S. Department of Education’s Office of Inspector General’s Southern Region, at a news conference on Wednesday.

Officials said there was no evidence Keleher or Ávila-Marrero had personally benefited from the scheme.

On Wednesday, a tweet from the National Resources Committee – which has jurisdiction over U.S. territories, including Puerto Rico – said Chairman Raúl Grijalva, D-Ariz., "is calling for Gov. Rossello of Puerto Rico to step down given multiple arrests in a corruption probe."



"We’ve crossed that crucible now," Grijalva told The Washington Post. "The restoration of accountability is so key going forward."

Gov. Ricardo Rosselló said on Twitter that he is returning to Puerto Rico from a family vacation "immediately" in light of the significance of the arrests.

"The allegations against the people arrested today are a disgrace," Rosselló tweeted. "Our public policy is clear: we will fight corruption in all its forms. No one is above the law."

U.S. Attorney for Puerto Rico Rosa Emilia Rodríguez said Rosselló was not a part of the investigation.

But Wednesday's arrests are the latest in a series of corruption cases that have been brought in Puerto Rico in recent months. On June 28, the FBI announced it was "investigating patterns of conduct concerning government corruption and fraud" in Puerto Rico and the U.S. Virgin Islands.

"It’s a shame that we see this type of scheme, one after another," Rodríguez said. "This is the type of case that’s been seen so much, involving federal funds, and it’s shameful."

The problem of corruption has raised concerns on Capitol Hill about billions of dollars in disaster relief money being sent to the island. And the arrests come as the territory continues its efforts to dig itself out of what The Wall Street Journal says in the largest municipal bankruptcy in U.S. history.

A statement from the Natural Resources Committee pointed out that "the arrests took place against the backdrop of the Puerto Rican people's ongoing struggle to receive federal relief money years after Hurricane Maria wiped out significant portions of the island's infrastructure and economy."

President Donald Trump has criticized Puerto Rican officials in the wake of Hurricane Maria, tweeting that all they do "is complain" and "ask for more money." He said the island's politicians are "grossly incompetent, spend the money foolishly or corruptly" and "only take from USA."



San Juan Mayor Carmen YulÍn Cruz, who has feuded with Trump over his handling of the disaster relief for Puerto Rico and his denial of the official death toll of more than 3,000, expressed concern in a tweet Wednesday that the arrests could hurt the fight for more federal disaster relief from Washington.

"Puerto Rico is much more than the difficult arrests we faced today," she said in a tweet. She said that while the allegations were "shameful" and an embarrassment for the island, "there are people who still need help."

"This much needed aid should not be 'weaponized' and used for political purposes."



Cruz, who announced she is running for governor in 2020, has been a fierce critic of Rosselló, and she said the statement from Grijalva was "proof" that he does not have credibility in Washington.

"The governor of Puerto Rico and his administration have now given President Trump the ammunition he needed," Cruz said, according to The Post.

"Maintaining the trust of the people is a constant challenge," Rosselló said in a statement on Wednesday. "This trust is torn when public officials or those tied to them are accused of crimes of corruption.

"As governor I assume the responsibility and commitment to combat this evil in all instances."

"Announcing a zero-tolerance attitude toward corruption is easy. Taking meaningful steps to prevent and punish it is leadership," Grijalva said Wednesday. "Gov. Rosselló has little time and much to do to restore public faith in his government, and I urge him to take a housecleaning approach as quickly and thoroughly as possible."


https://www.usatoday.com/story/news/politics/2019/07/11/puerto-rico-corruption-arrests/1701392001/
 
Doesn't it suck when the perpetrators of what is essentially organized crime are arrested in jeans and a long sleeve shirt?
 
Puerto Rico corruption scandal ripples through Washington as White House, Congress call for greater spending scrutiny
By Jeff Stein and Josh Dawsey | July 11, 2019

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Ricardo Rosselló, governor of Puerto Rico, speaks during a Bloomberg Television interview in New York. The island faces an uphill battle in securing federal funding after key former senior officials in the governor's administration were arrested on Wednesday

A corruption scandal in Puerto Rico is prompting fresh calls from Republican lawmakers to impose tighter constraints on federal spending for the island, intensifying a long-running political conflict in Washington over how to help it recover from a 2017 hurricane.

The new demands come as the Trump administration has already been searching for new ways to limit federal aid to Puerto Rico, following complaints the president made to his staff that the island is receiving too much assistance, according to a senior official who spoke on the condition of anonymity to discuss internal deliberations.

On Wednesday, two former senior members in the administration of Gov. Ricardo Rosselló were arrested and charged in a scheme to defraud the federal government through the misuse of contracts. Prosecutors have said that Rosselló is not a subject of the probe. One appeared in court on Thursday and is reportedly cooperating with prosecutors, while the other pleaded not guilty, according to El Nuevo Día, Puerto Rico’s biggest newspaper.

Some Republican lawmakers reacted to the arrests on Thursday by demanding stricter oversight measures to ensure taxpayer funding is not misused, while Democrats warned that withholding critical funding would only punish innocent victims.

The arrests come at a pivotal moment in the island’s relationship with federal lawmakers, as Puerto Rico seeks to secure the release of billions in federal aid from the Trump administration and pushes Congress to approve billions in new funds to prevent drastic cuts to the Medicaid health insurance program for hundreds of thousands of people.

Puerto Rico has for months complained about the slow release of federal aid from the island after Hurricane Maria, which killed thousands of people and caused between $90 billion and $120 billion in damage, according to varying estimates.

Congress has approved $42 billion for the island’s recovery, but only $13 billion of that money has been spent, spurring Democrats and island officials to demand its more immediate release. Russ Vought, the acting director of the White House Office of Management and Budget, is spending considerable time each week on Puerto Rico’s finances and created his own team in OMB to monitor the money, according to a senior government official. Such a team does not exist for U.S. states affected by other storms.

Trump has also sought regular reports on the money going to the island, and officials at senior agencies have gotten specific requests from Vought and OMB staff about the spending. The president has asked White House officials to monitor every dollar that goes to Puerto Rico, according to the senior official, and complained about federal funding to Puerto Rico for food stamps and other items.

José Carrión, a member of Puerto Rico’s fiscal oversight board and a “Latinos for Trump” leader, said in an interview before the arrests that “the federal government should be rigorous — that’s what Congress has tasked us for on a local front.”

Republicans in Congress are also stepping up their calls for tougher oversight. At a House panel hearing on Thursday, Rep. Greg Walden (Ore.), the top Republican on the Energy and Commerce Committee, said lawmakers will need to add stricter oversight measures for a package to provide billions in Medicaid funding to the island. Because Puerto Rico is not a state, its Medicaid program is skimpier and requires Congress to periodically step in and approve additional spending.

In April, Rosselló asked House lawmakers for $15 billion to cover its Medicaid program for the next several years, noting its federal funding is set to begin drying up this September and could impact 1.5 million residents on the program.

But among those arrested by the FBI on Wednesday was Ángela Ávila-Marrero, who oversaw the Puerto Rico Health Insurance Administration, which includes oversight of Medicaid, until June. Ávila-Marrero pleaded not guilty, according to El Nuevo Día.

“Given the news out of Puerto Rico yesterday, we will also need additional program integrity measures in place,” Walden said at the House hearing. “I look forward to working with the majority to see what kind of measures we can put in place to prevent these kinds of fraudulent activities, that are alleged, from happening.”

Rep. Gus M. Bilirakis (R-Fla.), a member of the Energy and Commerce Committee, also said Thursday lawmakers should add additional funding safeguards, citing the arrests.

The Medicaid package was approved by a House subcommittee on Thursday but still faces a long road to passage, particularly through the Republican-controlled Senate. Sen. John Cornyn (R-Tex.) said there would “absolutely” need to be stricter controls for federal spending on the island going forward. Sen. Marco Rubio (R-Fla.) said in a statement he was “very concerned” by the arrests, while Sen. Rick Scott (R-Fla.) said Congress must work to ensure taxpayer funding is protected.

“We’ve sent so much money down there, and I’m not entirely surprised" by the arrests, Cornyn said. “This has been the concern all along, that they’re not particularly competent.”

But Democratic lawmakers were wary of overreacting to the arrests, with Rep. Frank Pallone Jr. (D-N.J.), chairman of the Energy and Commerce Committee, saying that he would agree to some additional oversight measures but not at the expense of people who rely on federal help.

“There is no indication Medicaid beneficiaries in Puerto Rico did anything wrong. In fact, if the allegations are true the beneficiaries are among the victims,” Pallone said.

Rep. Nydia M. Velázquez (D-N.Y.), an outspoken defender of the island, said “the health care of the people of Puerto Rico should not be compromised" over the arrests. “We will fight like hell” to make sure Republicans do not block the funding, she said.

But some acknowledged the arrests would make securing federal funding for the island more difficult. Sen. Patrick J. Leahy (D-Vt.), who is on the Appropriations Committee and has pushed for Puerto Rico funding in disaster packages, said “of course” the arrests would make it more difficult to secure federal funding for the island.

Puerto Rico’s situation is dire. The island saw about 3.9 percent of its population leave in 2018, as the number of people living on the island has fallen by 15 percent since 2008, according to a Pew Research Center report released on Monday.

About 30,000 people in Puerto Rico are still living in blue tarp tents set up after the hurricane, partially due to delays in constructing new housing, according to Federico A. de Jesús, principal of the FDJ Solutions consulting firm and former deputy director of the Puerto Rico governor’s office in Washington.

De Jesús also said communities are still struggling with damaged roads and bridges, as well as broken streetlights, while billions in Department of Housing and Urban Development funding approved by Congress have not been released. He said the island is also still awaiting $2 billion of funding, already approved by Congress, for reconstruction of its electrical grid.

“But nobody can tell us where that is,” de Jesús said.

https://www.washingtonpost.com/busi...es-through-washington/?utm_term=.cfe9cc8f4357
 
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‘The People Can’t Take It Anymore’: Puerto Rico Erupts in a Day of Protests
By Frances Robles and Alejandra Rosa | July 22, 2019



SAN JUAN, P.R. — Hundreds of thousands of people swept through the capital of Puerto Rico on Monday, shutting down a major highway and paralyzing much of the city in the latest in a series of furious protests over the island’s embattled governor, Ricardo A. Rosselló.

The protest was one of the largest ever seen on the island, as Puerto Ricans streamed into the capital on buses — and some on planes from the mainland — in a spontaneous eruption of fury over the years of recession, mismanagement, natural disaster and corruption that have fueled a recent exodus.

Ignoring sporadic deluges, demonstrators launched impromptu line dances, paraded on horseback, banged pots and carried banners along several miles of highway, many shouting: “Ricky, renuncia, el pueblo te repudia!” — Ricky, resign, the people reject you.

Mr. Rosselló said on Sunday that he would step down from the leadership of his party and pledged not to run for re-election in 2020. But the governor, a 40-year-old former biomedical scientist and businessman, is growing increasingly isolated as a series of influential political leaders, some from his own party, have called on him to accede to public demands for an immediate resignation.

“Governor, Puerto Rico Demands Your Resignation,” the island’s largest-circulation daily newspaper, El Nuevo Día, said in an unusual front-page editorial on Monday.

The newspaper, citing an analysis by a geographer, said more than 500,000 people attended Monday’s protest, which later in the day moved from the highway to the area outside the governor’s residence. The organizers had not yet cited an attendance estimate, and the police said they did not plan to offer one.

President Trump, who has frequently been at odds with Mr. Rosselló, a Democrat, over federal hurricane recovery aid, weighed in on the protests. “You have totally grossly incompetent leadership at the top of Puerto Rico,” the president told reporters at the White House. “The leadership is corrupt and incompetent.”

The crisis has deepened an existential wound that has long been festering in Puerto Rico, an island of 3.2 million people that is a territory of the United States with neither official voting representation in Congress nor a vote in presidential elections. Hundreds of thousands of people have left in the past decade, as those who remained suffered through unemployment, hurricanes, economic restructuring and government-imposed austerity measures. Nearly half of those left on the island live in poverty.

“People are tired already,” said Ashley Santiago, 28, whose home in the eastern city of Yabucoa was without power for nine months after Hurricane Maria hit in 2017. Then her son’s neighborhood school became one of hundreds across the island that closed, victims of the debt crisis, population flight and a transition to charter schools.

“There’s an indignation that they walk all over you day after day,” said Ms. Santiago, who supports the protests. “They are up there making decisions and don’t see the domino effect the things they do have on the people. The people can’t take it anymore.”

The long-simmering unrest erupted earlier this month when Puerto Rico’s Center for Investigative Journalism published nearly 900 pages of transcripts of Telegram messaging app chats involving Mr. Rosselló and 11 of his friends and advisers, all of whom are men. The exchanges revealed an arrogant “bro” culture of elites who joked about making chumps out of even their own supporters. They ridiculed an obese man, a poor man, a gay pop star and several women.

In recent days, Puerto Ricans have used a variety of phrases to explain the effect the revelation of the crass messages has had on Puerto Ricans of all stripes: The last drop that overflowed the glass. The straw that broke the back of the Puerto Rican camel.

“It’s all connected,” said Dimaris Traverso, who joined the protests in San Juan. “From a bad government, to poor performance — it all connects.”

Ms. Traverso has been trying to get answers from the government about the death of her 23-year-old son from unexplained causes. But his body has been held up at the short-staffed morgue in San Juan for four weeks — in line for an autopsy, awaiting official identification, unable even to be buried. “Do you think it’s easy to be here with these picket signs?” Ms. Traverso said. “Do you think we had to resort to this?”

In an interview with Fox News on Monday, Mr. Rossello said he had apologized to some of those named in the chat but still has work to do as governor.

“I have made a decision; I’m not going to run,” he said. “I’m not going to seek re-election. And that way I can focus on the job at hand.”

“You know,” he added, “I’ve had the biggest recovery effort in the modern history of the United States on our hands. We’re battling corruption with certain initiatives that we’ve already started and certain new ones that we want to put out there so that we can fix the problem.”

Many Puerto Ricans see this crisis as an opportunity to rethink the difficult status quo. A fiscal control board designated by Congress has been calling many of the shots in recent years, forcing the island through strict austerity measures to manage a crippling debt crisis that caused it to declare a form of bankruptcy two years ago. Although the people and their placards are unlikely to change that, many experts here say that the protests could lead to a seismic shift in the domestic power structure, which has long been controlled by two political parties.

Puerto Rican politics have long been dominated by the governor’s New Progressive Party, which supports statehood for Puerto Rico, and the Popular Democratic Party, which favors an enhanced version of the current commonwealth status. The governor’s party controls both chambers of the legislature, but most protesters are fed up with both parties.

“There aren’t two parties, there is just one, the P.L.P.: the Party of Lining Your Pockets,” said Nelson Denis, the author of a book, “War Against All Puerto Ricans,” about a 1950 revolution in Puerto Rico and the long history of American intervention on the island.

Mr. Denis said the current push for change is not only over which politicians are in charge, but also what laws govern Puerto Rico’s relationship with the mainland. One of the chief targets is the 1920 Jones Act, which specifies that only ships built, owned and operated by United States citizens or permanent residents can bring goods to Puerto Rico. The law is cited as one of the main reasons goods generally cost much more in Puerto Rico.

“People get in a lather over this chat when hundreds of thousands should be marching over the Jones Act and structural issues that makes a car cost $6,000 more than it does in Miami,” Mr. Denis said.

Carmen Yulín Cruz, the mayor of San Juan and a member of the Popular Democratic Party, said Puerto Rico faces the possibility of significant political change for the first time in years.

“It’s not that we want to blow up the system,” she said. “It is that the system has imploded.”

Ms. Cruz, whose battles with Mr. Trump after Hurricane Maria made her an international celebrity, said she plans to run for governor next year. “We have to take this opportunity to look at the larger picture and see how we ended up with some of those vices of democracy that make those who have more think they deserve more, and those that have less continue to have less,” she said in an interview. “We are writing a different kind of history.”

Luis Vega Ramos, a legislator in Ms. Cruz’s Popular Democratic Party, said many of the measures he proposed in the past that never made it out of committee could now see new life as a result of the political tumult. Among the reforms he said are needed are campaign finance transparency, direct election of the lieutenant governor and the adoption of rules allowing Puerto Ricans to conduct citizen initiatives and recall referendums. Lacking runoff elections, he noted, Puerto Rico is now governed by a man who won just 42 percent of the vote.

“That means 58 percent voted against him,” Mr. Vega said. “People are fed up with a system they believe favors those who are close to certain candidates who are willing to engage in pay-to-play schemes. We have had corruption and ineptitude before. This is organized crime with bratty indolence.”

It is still not clear what effect the current crisis will have on the governor’s quest to make Puerto Rico a state, although it is unlikely to help. The issue has long been a divisive one on the island, where people enjoy the benefits of American citizenship but cling to their own Spanish-speaking culture.

In a 2012 vote, 54 percent of Puerto Ricans rejected the current territorial status, but they were divided on what to do as an alternative. The vast majority signaled support for statehood, but the vote on that issue wasn’t given much credence because so many statehood opponents and others boycotted the question.

“Island residents have felt for some years now that the current territorial status isn’t working anymore,” said Luis Fortuño, a former governor. “Said political status used to be promoted as the best of both worlds. Now it’s definitely the worst of both worlds.”

He acknowledged that statehood will take a back seat to the present domestic political turmoil.

“The current crisis trumps all other issues,” he said. “The claims for equal rights and obligations of the over 3 million Americans residing in Puerto Rico will not go away.”

Tamara López’s 9-year-old daughter, Libertad, died of a pulmonary disease on Sept. 20, 2017 — the day Hurricane Maria struck and health care services across the island were paralyzed. She said Puerto Ricans were ready to build a new government.

Ms. López and a handful of other women gathered under an unforgiving sun this weekend beside several pairs of used shoes arranged in a circle. A Nike sneaker supported a Puerto Rican flag. Each tattered sandal and battered sneaker once belonged to someone who perished in the chaotic days after the hurricane, when the government lacked a cohesive emergency response plan and hospitals were plunged into darkness.

She will never know whether her daughter died of natural causes, or because the government failed to require hospitals to have generators that could power life-sustaining equipment, she said.

“They used that slogan, ‘Puerto Rico Rises.’ What did it rise for? For corruption and for them to steal millions from the health department and schools?” she said, referring to recent federal indictments in those sectors.

“We went through the worst. We did not rise up for this. We rose up to build a new country,” she said. “Now, this is what we are building.”

https://www.nytimes.com/2019/07/22/us/puerto-rico-protests-politics.html
 
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