Private sector calls for ‘credibility reform’

Written by  //  February 17, 2011  //  Economy  //  No comments

Edgardo Bigas, Ismael Vega, and William Riefkohl
If the government truly wants to help the economy move forward, aside from monitoring that all of the recently enacted reforms effectively serve their purpose, it will have to implement what private sector representatives on Thursday called a “credibility reform.”

The conclusion was one of many presented during a panel discussion hosted by the Puerto Rico Hotel and Tourism Association on Thursday, during which Puerto Rico Chamber of Commerce CEO Edgardo Bigas, Puerto Rico Manufacturers Association Executive Vice President William Riefkohl, and Ismael Vega, chairman of the PRHTA’s board, discussed a number of issues affecting the island’s economic present and future.

“Sometimes it’s hard to believe that with so many reforms the government would want to threaten our industry, which leads me to suggest the need for a credibility reform,” said Vega, in response to a question regarding whether the recent reforms implemented will result in restoring Puerto Rico’s competitiveness as an investment-friendly destination.

“We’ve been impacted with new laws and changes to the rules of the game every single day. We can’t have companies come to Puerto Rico to do business under certain rules and have them change overnight,” Vega said. “More than anything, I think the government has to try to regain its credibility before investors.”

Over the past two years, the Luis Fortuño administration has set the ball rolling on a handful of changes involving permits, taxes, energy and — currently under discussion — labor reform.

“Reform, isn’t that the word of the day? I think ultimately it will depend on the public sector’s ability to make the correct use of the reforms and for the private sector to put pressure on the government to ascertain that reforms get implemented as they were designed,” Bigas said.

For example, he mentioned the case of the permits overhaul that went into effect last year. While he praised the new conditions for requesting and getting permits in an expedited manner, he said the red flag goes up when it comes to analyzing the regulations that accompany that, or any other reform.

“Regulations take good things out of legislation. Take for instance, the recently passed economic development laws legislated in the past session. The regulation that goes with it is a total disincentive to what the law tried to correct to provide benefits to companies looking to establish themselves in Puerto Rico,” said Bigas.

For years, the CofC has also been lobbying for another reform — to the island’s labor laws. At present, the Legislature is working on such changes, which Bigas said is the one tool the government truly has to pull Puerto Rico out of its 5-year-old recession.

“If the government doesn’t have the political will to pass a labor reform we will not get out of this recession and we will not be able to create the job opportunities we need in Puerto Rico,” he said, challenging the private sector “to pull that out of the government.”

Law 154 and PPPs
When the subject turned to the issue of whether Puerto Rico is truly showing signs of an economic recovery, the much-talked about Law 154 was among one of the key issues panelists said could be a drawback to any expected future improvement.

“Law 154 was a disaster,” said Riefkohl, during one of several rounds of comment. “We will not see the results of this act immediately — there may be a few projects that been immediately halted — we will see its effects in the mid- to long- term because it will be hard to attract investment to Puerto Rico with the same confidence than we’ve had in the past.”

Law 154 was passed in October 2010, to impose a new 4 percent excise tax on the sales between local subsidiaries operating as controlled foreign corporations and their stateside parent companies. In all, some 30 manufacturing companies will be affected, mostly pharmaceuticals, something the PRMA has frowned upon.

This week, companies made the first payment of the new tax effected in January, depositing $100 million into the government’s coffers. The Fortuño administration will use that money to float the tax relief package it passed last month, which will benefit local individuals and corporations.

“This is the fifth year of recession and even before Law 154, we did many things to the economy to damage it,” Riefkohl said. “We have this ‘salami theory’ where we chip off a little bit and think it won’t be noticed, but by the time you’re done you’ve sliced off half the salami. It can be said this happened here, and now we have a recession.”

“If we do not make the same effort to revert many of the things we inadvertently added to our system, it will be hard to see sustained and positive growth in next year,” he said.

Meanwhile, Vega said while most agreed a tax form was due, what was not expected was that financing it would fall mostly on one sector.

“We all agree that we needed a reform, but to what point should that be at the expense of losing manufacturing business? Nearly one-third of our business is corporate,” said Vega, adding that hotels have been losing manufacturing guests since Section 936 was phased out.

All three panelists coincided that the public-private partnership initiatives put forth by the government will reap positive results, because it should produce projects that will generate much-needed new jobs.

“The Chamber is very hopeful about the PPPs. However, while they are very promising in terms of attracting capital, passing this backdoor Law 154 really scares capital away,” Bigas said. “We cannot change the rules of the game and that’s the type of thing that is really contradictory. If the governor can mitigate some of the negative impact that he has created through Law 154, channel the PPPs, and continue to stimulate the economy to reactivate it, we should come out of this five-year recession and be on our way to prosperity.”

Leave a Comment

comm comm comm