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On The Road To Recovery United We Push
With the stateside and Puerto Rico economies on the brink of recession, Gov. Sila Calderon presents her administrations short- and long-term strategies to stimulate the economy into recoveryincluding raising $6.2 billion in bonds, $2.35 billion for refinancing and $3.85 billion in new money to pump into the economy.
The Calderon administration enacts long-term economic development legislation, zeroes in on a short-term economic stimulus package, and asks private business and labor leaders to lend their support and commitment to jumpstart the economy now
By MARIALBA MARTINEZ
October 11, 2001
In an effort to drum up support for the governments efforts to revive the sluggish local economy and fend off a further economic downturn following the Sept. 11 terrorist attacks on the U.S. mainland, Gov. Calderon last week convened upwards of 300 hundred business and labor leaders to present her administrations immediate action plan and to ask every economic sector to do their part.
A centerpiece of her initiative will be a three-month drive to raise $3.9 billion in stateside capital markets before the end of this year. Of that, $2.4 billion will be new money to pump into the economy to finance new projects and $1.5 will refinance existing debt at lower interest rates, thus reducing interest payment costs.
If achieved, together with the $2.3 billion already borrowed earlier this year, it will bring the total in bonds issued by the government of Puerto Rico in 2001 to a record-breaking $6.2 billion, the largest, single-year, total bond financing in island history.
The governor kicked off the Thursday afternoon meeting at the Governments Reception Center with her signature on a package of economic development measures which, upon the governors personal involvement, had been fast-tracked through the local Legislature following the Sept. 11 disaster.
Although the economic development legislation package was unanimously well received by the private sector, there was consensus among summit participants that its impact will not be felt until the medium to long term and, therefore, it will do little in the immediate term to shore up a faltering economy this year.
Rather, it was a series of other temporary, short-term initiatives announced by the governor at the meeting that really caught the attentionand garnered the rousing supportof the audience, especially the raising of billions of dollars in new bond issues that will be immediately pumped into the market in housing and public works projects.
The short-term initiatives also included room-tax breaks for hotels, airport fees reductions for airlines, and government purchase of 10,000 round-trip tickets to be offered at discount to visitors from major markets in order to prop up a faltering tourism industry. The administration conveyed the impression that it truly is on top of the situation and ready and willing to do its part to spur business and consumer confidence in the local economy. But the governor was not shy in asking the private sector to do its part.
"The only way that the islands commerce can remain stable and confident is if it sees, knows, and believes that its government is pro business. If it knows that its government will take all the measures it must, is willing to listen and consider its ideas, which come out of its experiences. But I am also asking the business sector to do something in exchange. I need their feedback on the results of our measures and I also need to hear what the business sector is willing to do in return," Calderon told CARIBBEAN BUSINESS in an exclusive interview immediately following the summit.
Pumping in the money
Of all the efforts being undertaken by the Calderon administration, none will get more attention from business leaders than the raising of $3.9 billion in the capital markets before the end of this year in order to finance government spendingespecially housing and public works construction projectsand refinance existing debt.
Experts agree that to skirt a recession, no initiative will have a more direct, immediate and significant impact on the economy than pumping billions of dollars into government construction projects.
"We are providing funds to public agencies and corporations at a critical time when public works are essential to counteract the effects of a decelerating economy," explained Government Development Bank (GDB) President Juan Agosto Alicea in a separate interview.
At the summit, Agosto Alicea announced the successful completion of an $800 million Tax Anticipation Revenue Notes (Trans) issue. He proudly announced to the audience that these notes were rated Triple AAA and were issued at 2.08% interest, whereas a similar New York issuance had a 2.13% and Californias a 2.20%.
"The fact that the Commonwealth government had to pay less than New York and California shows the credibility we have in the stateside capital markets," Agosto Alicea said.
The Trans issuance will allow the government to borrow against tax revenue expected to be collected in the future. Because in a slow economy, the governments tax collections throughout the year decline, the Trans bond issue will allow the government to meet its current cash flow obligations without incurring further deficit.
Next week, the government will place $1.275 million in general obligation bonds, $800 million to refinance existing debt and $475 million in new money into the economy for the construction of capital improvement projects.
Then, between Oct. 15 and early November, a Puerto Rico Energy & Power Authority (Prepa) issue worth $800 million will be floated, $500 of which will be new financing and $300 will be refinancing. Also in October, another $250 million bond will be issued to pay off an earlier GDB credit line extended to the Puerto Rico Health Facilities & Services Administration to finance the health reform.
Finally, another $786 million in Puerto Rico Highways Authority bond will be issued in November, $150 million to refinance existing debt and $636 million in new financing for the continued construction of the Urban Train and roads and highways.
Of the general obligation bonds already issued earlier this year, the Puerto Rico Housing Finance Corp. received $425 million in financing and $825 million to refinance existing debt, for a total of $1.25 billion. The allocation will allow for the financing of the 50,000 low-income housing units promised by Gov. Calderon during her first term. Practically all of the units will be built by the private sector.
Economic development objectives unaltered
"When the events of Sept. 11 occurred, I knew that the most important factor for Puerto Ricos economic growth was to stay on course with [the administrations] programs," Gov. Calderon told CARIBBEAN BUSINESS.
In fact, Gov. Calderons message to Puerto Ricos business community ever since the terrorist events has been centered on inspiring confidence and stability among the business community and consumers. She admits these two factors are "intangible," but is very clear they are essential to keep Puerto Ricos economy competitive with the rest of the world.
In a corporate setting, Gov. Calderon would be the chief executive officer, or CEOshe speaks like one, she acts like one. Yet the governor is very aware that all decisions she makes now will impact Puerto Rico during her political tenure, which she conceded to CARIBBEAN BUSINESS she expects will last beyond the current four-year term.
From the time she took office this past Jan. 2, Gov. Calderons administration has turned 16 bills into law. It has been legislation geared towards the creation and expansion of the islands economic development. Six laws were signed after legislative approval during last weeks Private and Labor Sector Forum on the Economic Development of Puerto Rico.
They are aimed at a number of economic sectors such as agriculture, commerce, tourism, manufacturing, banking and finance, construction, and the cooperative movement. And she continues to ask for input from both the private and the public sector, whatever it takes to get Puerto Ricos economy going as soon as is possible.
Last month, the governor had a smaller economic summit with a group of about 40 business leaders at La Fortaleza which was also attended by several government agency heads.
The governor recognized that the events of this yearboth the overall economic downturn and the economic uncertainty following Sept. 11will take a toll on her administrations promised objectives, which were initially made based on a different economic outlook after last years elections.
"This is a moment to be an idealist, because the reality is devastating. We have to be positive, proactive, and exercise leadership. There is never enough money during the worst times. Money looks for security and it is averse to risky environments. Thats why we have to be positive," said Gov. Calderon.
She admits that the slow economy has had an impact on her administrations tax revenue projections, but is committed to do whatever necessaryincluding further budget cutsin order to keep a balanced budget.
"I head this administrations economic development committee. I committed myself to end my four-year term with a balanced budget. At this time, I cannot project what will happen because these are not normal times.
"But things may soon start to turn. If I have to make budget cuts, I will. I do not believe that money is generated when you save it, but rather when you invest it. At the end of my term, I will have a balanced budget and I intend to do this through revenue collection."
Gov. Calderon is well aware that voters will judge her by her ability to deliver on promises made. And none will get closer scrutiny than her government program commitment to create 100,000 jobs within her four-year term. To that end, each government agency was assigned a quota of jobs to create, which would be monitored by the Economic Development & Commerce Department (EDCD).
"At the beginning of 2001, in the midst of the economic downturn, the government had a negative balance in job creation. Now it has gotten worse! While I am still committed to creating 100,000 jobs during this term, proportionately I dont foresee keeping on track with our estimates for fiscal year 2002.
"I am still optimistic that the laws I have enacted and the economic stimulus we are creating will provide new growth opportunities in and for the private sector. Thats why it is so very important that the new stimulus laws be carefully studied so that business owners can implement them.
"So far, my administration has enacted 16 bills. Now we have to consider bills that do not depend on tax incentives or breaks because the government also needs revenue. I am depending heavily on the private sector to come up with its own ideas."
"Now the private sector has to respond. At this time they would be dumb if they do not take advantage of [these laws]. Here they are, take advantage, go out and make money! The more profitable companies are, the better it is for Puerto Rico. I take my job very seriously as Puerto Ricos No. 1 promoter."
The governor is also planning a communications campaign to explain the advantages of the new economic incentives and laws. It will involve advertising and mailings and be supplemented by seminars offered by professional entities such as accountants, economists, lawyers, and bankers associations. According to Calderon, the administration will aggressively market the package to the islands private sector.
For Gov. Calderon, the amendment of Internal Revenue Code Section 956 still remains the cornerstone of her long-term economic development program. The possibilities of its discussion by the U.S. Congress may have been delayed in the wake of Sept. 11. But she is still mobilizing her political forces in Washington, D.C. to convince as many congressmen as possible of its benefits, what she calls a win-win situation for both the U.S. and Puerto Rico.
Gov. Calderon still expresses disappointment over the fact that opposition political parties did not endorse her Section 956 initiative. She says that, ideological differences aside, it is an incentive that will allow Puerto Rico to remain competitive"an incentive direly needed by the island given the gradual disappearance of Section 936 and the economic downturn I was faced with at the beginning of my term in 2001."
"[Section 956] is part of my short-term economic development strategy. My staffers in Washington, D.C., cabinet members such as EDCD Secretary Ramon Cantero Frau, and I have met with hundreds of congressional staffers and gotten the support of more than 35 members of the U.S. Congress (H.R. Bill #2550). Last month, Sen. Orrin Hatch (R-Utah) and Sen. John Breaux (D-LA) introduced the bill in the U.S. Senate (S. Bill #1475).
"Our strategy has now been modified, conforming to the new situation in Congress after the Sept. 11 events. But I still feel we will be favored in this measure, hopefully during this legislative session or at least before summer of next year. On my next visit to Washington, D.C., I hope to meet with Rep. Bill Thomas (R-CA), co-chairman of the U.S. Congress Joint Committee on Taxation, to discuss the bill and get his approval. While I cannot control events [such as Sept. 11s], I will remain true to my strategy."
Vision for the future
Beyond a short-term strategy to deal with the current economic slowdown, Gov. Calderon is also personally involved in crafting a long-term strategy. According to her, it is more like a long-term vision of the Puerto Rico that we would all like to have a quarter of a century from now.
Called Puerto Rico 2025, the strategy is being designed by a number of what she calls "thinkers", in an inclusive process that will be framed and crafted by Puerto Ricans but with the help and perspective of economists who live outside the island. She expects the plan to be ready by next year.
"Puerto Rico is an island and as such, we tend to be insular, to think small. I believe we should think big and that is what Puerto Rico 2025 is all about. My father always told me to live in a place with a great view because it expands your horizons. Now I live in a place with a great viewand what a view! I wish he was around to see it!"
CARIBBEAN BUSINESS Associate Editor Lida Estela Ruaño contributed to this story.
This Caribbean Business article appears courtesy of Casiano Communications.