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PUERTO RICO REPORT
Businessmen Fret Over Government Inattention On Economy
by Robert Becker
June 22, 2001
Business people in Puerto Rico these days are worried. They tell you, privately, that sales are slow, people arent spending, and that they and their friends are not investing in anything until things clear up.
Puerto Ricos economy is inseparable from that of the United States. Part of the current slowdown is simply the inevitable effect of the concurrent slowdown in the U.S. economy. Puerto Ricos economy is far less diverse than that of the United States, so it is more vulnerable to the swings of the business cycle. When the United States sneezes, Puerto Rico catches pneumonia.
But there is more to it.
There is also a sense among many business people here that Gov. Calderóns focus, to the exclusion of everything else, on Vieques is harming the economy. The huge governmental bureaucracy of Puerto Rico has insinuated itself into every nook and cranny of the economy. The government has the ability to spend billions of dollars on private sector contracts and to stimulate business growth through tax and regulatory policy. Like it or not, the government calls the tune in the Puerto Rican economy.
Puerto Ricos statist, over-centralized economy has also been dependent for decades on federal tax incentives to lure outside investment. The most effective of these, Section 936 of the Internal Revenue Service code, has been repealed by Congress and is in the latter part of a phase-out. For this -- and other -- reasons, industries here are scaling back on investments, laying off thousands of employees and leaving the island for more advantageous locations.
Business people grouse that Calderón should be focusing her energies on creating new business incentives and opportunities to spur economic growth. Instead, she engages in activities that contribute nothing to Puerto Ricos development, and worse, have an inimical effect on Puerto Ricos future. Her anti-Navy stance and perceived anti-Americanism has made her deep and lasting enemies in the U.S. Congress, including Rep. James Hansen, R-Utah, who chairs the House Resources Committee, which has jurisdiction over Puerto Rico.
A measure of the animosity can be gleaned from Hansens remarks in a recent National Public Radio interview. Hansen, in comparing the attitudes of Puerto Ricans towards U.S. military bases with the attitudes of the people of Okinawa, declared that Puerto Ricans should not get any favorite treatment.
They sit down there on welfare and very few of them paying taxes, got a sweetheart deal.
A San Juan weekly carried an interesting item in its gossip column about a meeting between a group of wealthy Popular Democratic Party contributors and Calderón. The column said the donors told Calderón in no uncertain tones that she had to get off Vieques and on to the economy.
It is perhaps just coincidence, but Calderón unveiled, on June 19, a blueprint to create 100,000 new jobs with $379 million in government funds invested in the first year of the plan. While the plan was long on promises but short on details, it sent the message that Calderón was, at least, thinking about the economy.
Flanked by her top economics advisers, Calderón predicted that private sector employment would increase from the current 1,146,300 jobs to 1,246,300 jobs at the end of her four-year term.
On closer inspection, Calderóns jobs plan is based on the natural growth of the economy at a rate of 3 percent to 4 percent. That, given Puerto Ricos slowing economy and poor prospects of getting federal tax incentives for investors, appears overly optimistic. Calderóns plan is to stimulate private sector growth through government spending and bureaucratic reforms, including agricultural incentives, job training programs, subsidies for jobs creation, tax incentives for new investments and simplifying the process of obtaining permits.
That is all well and good, but it is exactly the same promises that each incoming administration makes for economic growth and, as Puerto Ricos history shows, those promises always fail. No politician in Puerto Rico, from either the PDP or the New Progressive Party, has shown the courage to slay the dragon of government bureaucracy, which is an immovable dead weight on the islands economy.
Calderón spent many of the early days of her administration bemoaning the poor shape of government finances bequeathed to her by former Gov. Pedro Rosselló. More than half of her jobs stimulus funds will come from the federal government, but it remains to be seen from where Calderón will get the rest, given the ostensible penury of her government.
Puerto Ricos worried businessmen can at least take solace that Calderón is beginning to address the economy. Whether it turns out to be empty press conference promises will be learned over the next 3 1/2 years.
Robert Becker, Managing Editor of The San Juan Star, writes the weekly Puerto Rico Report column for the Puerto Rico Herald. He can be reached directly at: email@example.com