General Biz News

Puerto Rico in hot pursuit of stateside investors

Popular Inc. CEO Richard Carrión Popular Inc. CEO Richard Carrión

Puerto Rico is in hot pursuit of the wealthiest stateside investors, with the public and private sectors banding together to showcase the benefits — both legal and natural — that the island has to offer.

The effort was in full swing Thursday, during the 2014 Puerto Rico Investment Summit, which gathered about 200 would-be backers of the island’s initiative who sat in on testimonials and presentations by several big-money executives and government officials who talked up the island with the goal of jumpstarting the economy.

First on deck was Richard Carrión, CEO of Popular Inc. — and one of the most powerful executives on the island — who offered some history on Puerto Rico’s economic background from the late 1940s to the present, when fiscal conditions remain delicate.

“Problems created in decades cannot not be solved in months. But, the government has taken a series of difficult, and necessary, measures, to address the current situation, such as reforming the pension system, presenting a balanced budget and executing the recent GO issue,” said Carrión. “I firmly believe that we are at a critical turning point that presents, as other turning points I have mentioned, great opportunities.”

“Puerto Rico was transformed in the 1950’s with the shift from an agrarian to an industrial economy. We were transformed yet again in the late 1970’s, when new tax incentives promoted a higher-value-added type of manufacturing,” he said.

“Today we stand at the threshold of yet another economic transformation – from an industrial to a knowledge-based economy. This is a global phenomenon, so we have to ask ourselves:  does Puerto Rico have what it takes to compete in this new economy? I am convinced it does,” he said.

He went on to tout Puerto Rico’s modern infrastructure, solid legal framework, political stability and highly regulated financial system, and excellent living conditions as some of the right reasons for stateside investors to establish themselves on the island.

However, in an aside with reporters after his keynote, Carrión spoke openly about his concerns over several issues that Puerto Rico still must control to be able to cross over into positive territory.

“A critical element here has to be how to put growth back into the equation because you can go crazy looking at economic statistics all day long, but there are one or two that you have to focus on,” he said. “For me there are two issues: the drop in our population, something we’ve never seen, and our labor participation rate, which is just a shade under 40 percent.”

“That just needs to be the opposite, just like in the states, where there is a 60 percent participation rate. So I think there are some structural things that need to get done and under the new philosophy of ‘you shouldn’t let a good crisis go to waste,’ I think we are in a juncture to attack a couple of those problems that are fundamental.”

Carrión, who has apparently been instrumental in helping the island land several significant deals in recent months — the Lufthansa aircraft repair operation that will go up in Aguadilla and investor John Paulson’s interest in a number of properties — also said Puerto Rico’s tax system needs overhauling, and lowering energy costs must be placed on the front burner.

Finally, he predicted Puerto Rico will not default on its debt, despite recent word on the Government Development Bank’s hiring of several stateside firms specializing in debt restructuring.

“I don’t see that at all. The payment of the debt is constitutionally protected. The debt must be paid before anything else gets paid and there is enormous political will that this debt be honored, so I don’t really see that happening,” he said, referring to the government’s $70 billion burden.

Nicholas Prouty Nicholas Prouty

Prouty, Paulson share their experiences
Some of the most passionate testimonials for Puerto Rico’s business attributes came from investors who have found opportunities in Puerto Rico. The commonwealth offers tax incentives for investments in a wide range of services, including insurance, IT, asset management and financial services. Incentives are also available for wealthy individuals who resettle on the island.

Investor Nicholas Prouty — who has already picked up a couple of properties in Puerto Rico — said the island is “in the process of a great reinvention” that is creating enormous opportunities for investors. He said the tax incentives were just one factor that led to his family’s decision to move from New York to San Juan.

“I’ve never made an investment decision based solely on taxes,” he said. “Puerto Rico has everything we thought we would miss.”

Meanwhile, hedge fund manager John Paulson, who delivered the concluding address on the summit’s opening day, said Puerto Rico is on the cusp of an economic transformation that could make it “the Singapore of the Caribbean.”

“We are just starting to see that happen. Everyone here will be at the beginning of that,” he told the summit participants. “We are investing here because we think we’re getting involved on the ground floor.”

The investor summit, co-hosted by DDEC and Paulson & Co, will continue today, with sessions on the investment incentives; the construction and residential markets; and other aspects of working and living in Puerto Rico.

Comments (4)

  1. The tax breaks for service exporters and investors in Laws 20 and 22 and for international banking entities in Law 273 make profoundly bad policy. And the results are nothing more than anecdotal hype that needs to be viewed in the larger context of the Island’s fiscal and economic crisis.

    Indeed, one can make a compelling case that tax breaks such as these are major factors in the government’s insolvency and the Island’s economic decline. Almost two-thirds of the Island’s GNP pertains to tax-exempt manufacturing and rents from real estate. While these sectors employ just 6% of the taxpaying workforce, over 90% of their income accrues to their non-taxpaying owners.

    As for the additional tax breaks offered to international banking entities by the International Financial Center Regulatory Act (Law 273), more money in Puerto Rico’s banks will not create jobs. Indisputable proof of this fact is that Puerto Rico’s international banking entities employ just 304 people while holding almost one third of all the Island’s bank assets, according to the Commission of Financial Institutions.

    These programs passed during the Fortuño administration are variations of the discredited theme that only lower taxes will bring investment to Puerto Rico.

    What successive governments do not seem understand is that the best investors for Puerto Rico are those actually willing to pay taxes for the privilege of doing business in Puerto Rico. By giving away this privilege for free, Puerto Rico is sending the wrong message. That message is that the Island has nothing else to offer. Ironically, this becomes a self-fulfilling prophecy because these tax breaks deprive the government of the revenues needed for basic public services to create the quality of life that businesses and individuals demand.

    The government needs tax revenues, especially from those who can most afford to pay, so that Puerto Rico can become a wonderful place to live and work. This, more than anything else, will make the economy grow.

    • You are totally wrong, sir. This is not how any any economy grows. You always begin by lowering taxes and the industries that pursue are what create the jobs and indirectly at first. These indirect jobs, first through 3 party vendors of services are not direct jobs under the payroll of the investor but on the one of the service provider’s. The economy indeed does grow and the venue for doing business will be promoted by word of mouth and not paid advertising which is better. if you studied the history of economics not only of Singapore but that of Hong Kong and other like geographically minuscule regions on the water (or not), you may begin to understand how this does work and how the government of Puerto Rico indeed already receives way more than enough revenue (improperly managed) to handle a mere population of 3 million.

      • Thank you for your comments. I invite you to examine the actual results of Puerto Rico’s vigorous promotion of tax exemptions over the last ten years. It is precisely PR’s tax-exempt sector that has eliminated the most jobs (and counting) on the Island. More than 200,000 jobs have been lost despite relentless grants of tax exemptions and other subsidies for activities that are otherwise noncompetitive in PR .

        Any jurisdiction can cut taxes. Competition to attract and retain foreign investment must be based on more than just lower taxes.

        Separately, I agree that PR mismanages its tax revenue. But this revenue is certainly insufficient to provide basic public services in education, safety, hygiene and transportation. The unpayable public debt should be sufficient evidence of this circumstance.

        Regarding Singapore and Hong Kong, these jurisdictions do not share the same commercial traditions and activities of our Island. Their core competencies (high-tech and complex financial services) lay in distinctly different areas.

        The correlation of low taxes and employment is dubious at best. PR collects about 13% of GDP in taxes but its unemployment is about 14%. Meanwhile, Norway collects over 40% of its GDP in taxes, but its unemployment is 3.5%.

        Thanks for the exchange of ideas.

        • No, thank you for the insight. I still think that taxes should go down and not up and be simplified rather than complicated. I believe the Government should make the best it can out of the money it receives and quit asking for more. Many public “goods” can be handled by the private sector much better and cheaper as well. This would further reduce Government costs all while creating healthy competition and accountability which is really what we DO need.

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