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Americas Review World of Information

Puerto Rico - Review

September 29, 2003
Copyright © 2003 Quest Information Limited. All rights reserved. 
Quest Information Limited and publishers assume no liability for the consequence of reliance upon any opinion or statement contained in this database

The continued economic downturn in both the US and global economics has hurt Puerto Rico. The long stable manufacturing sector has contracted since 2000. In 2003, for the first time in 50 years, the island's residents were forced to consider other means of boosting the economy. Puerto Ricans remain sharply divided on their status in relation to the US and show little sign of agreeing soon. Corruption scandals have plagued the island since 2000, the final year of Pedro Rossello's governorship, making for an uninviting investment climate, throwing Rossello's renewed bid for governor into doubt.

The status question

Puerto Rico's three main political parties are organised around the status debate, with the ruling Partido Popular Democratico (PPD) (Popular Democratic Party) supporting the present commonwealth status, the Partido Nuevo Progresista (PNP) (New Progressive Party) supporting statehood and the much smaller Partido Independentista Puertorriqueno (PIP) (Puerto Rican Independent Party) supporting independence.

Governor Sila Maria Calderon Serra is eager to enhance Puerto Rico's commonwealth status, lobbying for reinstating tax incentives for businesses located in Puerto Rico and a more equal status in terms of federal funding. However, statehood advocates have been unwilling to participate in her efforts at reaching consensus. In response, Calderon launched a campaign to register Puerto Rican voters in the US in an attempt to pressure Congress on Puerto Rican issues.

Advocates for statehood see economic salvation in becoming the US's fifty-first state, benefiting from the stronger, although flat, US economy. However, statehood poses complicated questions as well. It is unlikely that Puerto Ricans could afford US tax rates; per capita income is less than half that of the poorest US state, Mississippi, and 48 per cent of the population live below the federal poverty line.

In August 2002, US Senator J Bennett Johnston told the San Juan Star that 'Congress will not pay for a status that has all the benefits of statehood and the attributes of independence. A realistic definition would not be very much different than what they have now'. Adding Puerto Rico to the Union would mean an estimated US$3,000 million in extra benefits. As it stands, Puerto Rico receives roughly US$11,000 million from the US every year, US$6,000 million of which is Social Security and federal workers' salaries and pensions.


The issue that unites Puerto Ricans of all political backgrounds is the US Navy's use of the island of Vieques for bombing and artillery practice. The opposition to the bombing was catalysed by the 1999 death of a Puerto Rican security guard, killed by an errant bomb. The Bush administration made good on its promise to pull out of the island by May 2003, although the 5,600 hectares of Navy land were transferred to the US Department of the Interior instead of the Puerto Rican authorities. The Department of the Interior will assess whether or not the land is hazard free, eventually converting it into a nature refuge closed to the public. It has reportedly set aside US$2.3 million for the clean up.

Many Vieques residents find that sum too small, pointing to the tens of thousands of unexploded ordinance left behind as well as the islands cancer rate, which is 26 per cent higher than that on the main island. While the US government has maintained that the island has not been made unsafe by naval bombing raids, reports that depleted uranium shells as well as chemical weapons were used on the island place the US claims in doubt.

Politics and corruption

In May 2003, Calderon surprised supporters and opposition members alike with her announcement that she would not seek re-election. The announcement followed former Governor Pedro Rossello's (1993-2000) return to Puerto Rican politics as candidate for governor in 2004.

Rossello's PNP administration has been the subject of corruption allegations since his last year in office in 2000. Seventeen people were arrested in a federal corruption case in March 2002, including the former president of the Chamber of Commerce and former education secretary Victor Farjado. The two were involved in a kickback scheme, involving the theft of around US$4.3 million from the resource-poor Puerto Rican education system. Around US$1 million of the amount stolen made its way to the PNP.

In August 2002, a federal jury found a former Rossello executive guilty of extortion and conspiracy for taking pay-offs from four government contractors in return for setting up meetings with cabinet members. Two of the four have pleaded guilty to extortion charges and all were members of the fundraising organisation Empresarios Con Rossello, an exclusive club of rich businessmen who donated to Rossello's election campaign.

Calderon has since spearheaded campaign finance reform legislation. If passed in 2003, the legislation would make political campaigns publicly funded and end the practice of government heads being assigned fundraising quotas by the ruling party's election committees. However, it would still allow millions to be collected from private sources up to a certain amount.

Corruption in Puerto Ricos has created an uneasy investment climate, and many business leaders worry that it will further damage an already faltering economy. Investment in commercial banking fell from US$2.6 billion in fourth quarter 2001, to US$1.2 billion in fourth quarter 2002.

Pulled up by the bootstraps

Manufacturing has been the backbone of the Puerto Rican economy since the US-sponsored 'Operation Bootstrap' which transformed the island economy's focus from agriculture to manufacturing in the 1950s. Agriculture now makes up 1 per cent of the island's GDP, while manufacturing accounts for 45 per cent and services 54 per cent.

Puerto Rico's economy, married to the US economy, was strongly affected by the US recession and saw its growth rate fall to -0.2 per cent in 2002. Total exports fell from US$10,573 million in 2001 to US$9,732 million in 2002.

The manufacturing sector has been hit especially hard by the recession and the US's repeal of the tax incentives awarded to companies located in Puerto Rico, which began being phased out in 1996. Since that time, 28,000 manufacturing jobs have been lost on the island. The number of plant openings shrank by 11.9 per cent in 2002. Since 2000, unemployment on the island has risen from 11 per cent to almost 13 per cent in 2003.

In response to the island's high poverty levels, Calderon has launched a US$1 billion anti-poverty campaign, the first to use only local funds, which targets almost 700 communities on the island. The programme was well received by the PIP, but attacked by the pro-statehood PNP.

Proponents say that the programme will create 30,000 jobs in the important construction sector, giving the economy a boost. Critics on the other hand question whether infrastructure projects will lift people out of poverty. The five-year programme is to be funded from a US$500 million grant from the Government Development Bank and US$500 million from a long-term bond issue. The plan will likely increase an already growing public debt which rose 8 per cent, from US$28,119 million in 2001 to US$30,365 million by the end of 2002.


Non-binding plebiscites on Puerto Rico's status held in 1993 and 1998 were split equally between those wanting to maintain the commonwealth status and those who reject it. With the US unwilling to pay for statehood and independence lacking popular support and economic feasibility, it is likely that Puerto Rico will remain a possession of the US. Continuing US involvement in free trade agreement negotiations with Latin America will likely mean increasingly hard times for Puerto Rico's manufacturing sector and economy as a whole. Elections are coming up in 2004, and it remains to be seen if corruption in the last Rossello government will affect the NPP's chances for winning back the island's governorship.

Risk assessment

Political Stable

Economic Poor/Unstable

Regional stability Good

Stock market Poor

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