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December 20, 1999
Copyright © 1999 WALDEN PUBLISHING, LTD. All Rights Reserved.

Walden Publishing Ltd and JMIS assume no liability for the consequence of reliance upon any opinion or statement.

For the second time in six years, a referendum proposing Puerto Rico's formal incorporation into the USA was rejected by the island's citizens. However, Pedro Rossello the Governor of Puerto Rico and his Partido Nuevo Progresista (PNP) remain firm advocates of making Puerto Rico the fifty-first state of the USA.

Statehood rejected
The issue of whether the one-hundredth anniversary of US control should see the formal incorporation of Puerto Rico as the fifty-first state of the USA dominated the political scene during 1998. The referendum to determine Puerto Rico 's constitutional future, was formally approved by the US House of Representatives in March 1998 by one vote, although it was agreed that the US would not be bound by the referendum result.

The last plebiscite in 1993 saw Puerto Ricans vote to retain their status as a Commonwealth within the USA. However, the result was close, with 48 per cent voting to maintain the status quo, 46 per cent voting for statehood and 5 per cent for complete independence. As a commonwealth of the US, Puerto Ricans have one non-voting representative in Congress, are exempt from federal taxes, receive billions of US dollars in federal aid, and are permitted to vote in presidential primaries, although not in general elections. The pro- statehood campaigners, led by Governor Pedro Rossello, maintain that relinquishing some of these benefits and perhaps a little of the Spanish culture, in return for improved economic benefits and a political voice in Washington would be worth the sacrifice.

However, in December 1998 the Puerto Rican voters once again rejected statehood in favour of maintaining commonwealth status. Even so, the result was again close with 50.2 per cent of voters supporting the opposition Partido Popular Democratico (PPD) which campaigned for no change, while 46.5 per cent voted for statehood. Only 2.5 per cent opted for independence, with free association gaining 0.3 per cent.

This result has far from settled the constitutional issue, with Rossello claiming that the result should be interpreted as a victory for his campaign, as the pro-PPD majority was largely a protest vote against his administration rather than the statehood option. Rossello has pledged to continue his quest to petition the US Congress to make the island the fifty-first state. In response, the PPD maintain that the referendum vote has effectively killed off all hopes of Puerto Rico becoming a US state.

Protests at privatisation
The news that the Puerto Rico Telephone Company (PRTC) was to be sold to a consortium led by GTE of the US, resulted in an immediate call for strike action by its employees. The PRTC is one of Puerto Rico 's most prosperous companies, with an annual income in excess of USD1.22 billion in 1997, a 3.6 per cent increase over 1996.

Initially beginning with a small band of around 6,500 PRTC workers on 18 June 1998, the protest against the sale quickly escalated and a two- day general strike was held on the 8-9 July in support of the telecommunications workers. The general strike saw around 500,000 members of more than 50 trade unions combine forces in support of the telephone workers, resulting in a total shut-down of all shops, hospitals, public transport and the blockading of part of the international airport. The workers were sceptical of government assurances that there would be no job losses for at least a year after PRTC's privatisation. In its defence the government claimed that legislation passed in 1996, which resulted in the deregulation of telecommunications services and spelled the end of PRTC's 22-year monopoly, would mean a severe fall in the company's profitability level unless it was privatised.

The telecommunication workers' strike was finally ended after 48 days and despite the protestations of the workers, the US Federal Communications Commission approved the privatisation in February 1999. GTE paid just over USD2 billion for a 51 per cent stake and management control in the company and plans to invest in excess of USD1 billion to improve the infrastructure. It has assured Puerto Ricans that telephone rates would remain constant for the foreseeable future.

The PRTC sale was Puerto Rico 's largest privatisation and following this success the government plans to accelerate the privatisation process, focusing next on hotels, regional airports and the prison service.

Georges hits economy
The black clouds which accompanied the arrival of Hurricane Georges and the subsequent devastation inflicted on the Puerto Rican economy, may in fact have a silver lining. The widespread damage caused by the hurricane, the most severe for 70 years, will result in billions of dollars of US federal aid and insurance payouts. It has been estimated that Georges may cost insurers anything up to USD2.5 billion, with property damage in Puerto Rico alone likely to account for USD1.7 billion. As Carlos Vivoni, secretary for economic development stated `we expect the funds to help us rebuild capital stock to a higher level than before the storm and also to lift consumer spending to higher levels'. It is estimated that in the region of USD5 billion will be committed to the island.

However, the effects of this capital influx will not be immediately visible, with GDP growth likely to be in the region of 2.2 per cent for 1998, just below the 1997 level. Damage to the tourism sector in particular resulted in thousands of lost room-nights, as well as damage to approximately 40 per cent of all hotel rooms. Fiscal spending is likely to rise due to the reconstruction of the island's infrastructure.

The tourism sector received a much needed boost in October 1998, when the purchase of the Caribe Hilton Hotel by Hilton International was agreed for USD80 million. It was expected that a USD40 million restoration programme would begin immediately, with a further USD70 million to be spent on adding a further 300 rooms to the 670 already in operation, making it the largest hotel in Puerto Rico.

Business Directory

Chambers of commerce
Chamber of Commerce of the West of Puerto Rico Inc, PO Box 9, Mayaguez, PR 00709 (tel: 832-3749).

Official Chamber of Commerce of Spain, PO Box 894, San Juan, PR 00902 (tel: 725-5178; fax: 724-0527).

Puerto Rico Chamber of Commerce, PO Box S 3780, San Juan, PR 00902 (tel: 721-6060; fax: 723-1891).

Government Development Bank for Puerto Rico, PO Box 42001, San Juan 00940-2001 (tel: 726-2525).

Principal newspapers
El Nuevo Dia, 404 Ponce de Leon Ave, PO Box 5297, San Juan 00902 (tel: 721-7070).

El Vocero de Puerto Rico, 206 Ponce de Leon Ave, PO Box 3831, San Juan 00904 (tel: 721-2300).

The San Juan Star, The Acacia, Monterrey Industrial Development, PO Box 4187, San Juan 00936 (tel: 782-4200).

Travel information
Puerto Rico Tourism Company, 301 San Justo Street, PO Box 4435, Old San Juan Station 00905 (tel: 721-2400; fax: 725-4417).

Other useful addresses
Caribbean Development Programme, Puerto Rico Department of State, PO Box 3271, San Juan, 00912 (tel: 721-1751; fax: 723-3304).

Department of Agriculture, PO Box 10163, 10163 (tel: 721-2120; fax: 723- 9747).

Department of Economic Development and Commerce, F.D. Roosevelt Ave #355, 4th Floor, Hato Rey, 00918 (tel: 764-1175 fax: 765-7709).

Department of Education, PO Box 190759, 00919 (tel: 758-4949; fax: 250- 0275).

Department of Justice, PO Box 191, 00912 (tel: 721-2900; fax: 724-4770).

Department of Labour and Human Resources, 505 Munoz Rivera Avenue, 00918 (tel: 754-5353; fax: 753-9550).

Department of Natural and Environmental Resources, PO Box 5887, 00906 (tel: 724-8774; fax: 723-4255).

Department of the State, Box 3271, 00902 (tel: 722-2121; fax: 725-7303).

Department of the Treasury, PO Box 4515, 00902 (tel: 721-2020; fax: 723-6213).

Department of Transportation and Public works, PO Box 41269, 00940 (tel: 722-2929; fax: 728-8963).

Government of Puerto Rico Economic Development Administration, PO Box 362350, San Juan 00936 (tel: 758-4747; fax: 764-1415).

Legislative Assembly, Capitol Building, 00901 (tel: 724-5200; fax: 724- 2428).

Office of the Governor, La Fortaleza, 00901 (tel: 721-7000; fax: 721-7483).

Puerto Rico Bankers' Association, 820 Banco Popular Center, San Juan, 00918 (tel: 753-8630; fax: 754-6077).

Puerto Rico Industrial Development Company (FOMENTO), FD Roosevelt Ave, Hato Rey, San Juan, 00918; PO Box 362350, San Juan, PR 00936-2350 (tel: 758-4747; fax: 754-9640).

Puerto Rico Manufacturers' Association, PO Box 192410, San Juan, 00919 (tel:759-9445; fax: 756-7670).

Puerto Rico Ports Authority, PO Box 362829, San Juan (tel: 723-2260; fax: 724-6444).

San Juan Convention Bureau, Ashford Avenue 1110, San Turce, 00907 (tel: 725-2110).

Supreme Court, Supreme Court Building, 00901 (tel: 723-6033; fax: 725-4910).

Internet sites
Puerto Rico: http//

Business Guide

Time: GMT -4 hrs.

Climate: Tropical with extremes of heat tempered by constant sea winds. Average temperature ranges from 24-30 degrees C. There are occasional hurricanes.

Entry requirements: Passport: Required by all except nationals of USA and Canada. Visa: Required by all except nationals of USA and Canada.

Currency: No restrictions on import/export of any currency to the value of USD10,000. Higher amounts must be declared.

Health precautions Mandatory: None.

Air access: International airport: Luis Munoz Marin (SJU), 14.5 km east of San Juan; duty-free shop, bar, restaurant, bank, post office, shops, hotel reservations, car hire.

Surface access: Main ports: Ponce, Mayaguez and San Juan (major Caribbean hub for maritime shipping).

Public holidays: Fixed dates: 1 Jan (New Year's Day), 11 Jan (De Hostos' Birthday), 15 Jan (Martin Luther King Day), 22 Mar (Emancipation Day), 16 Apr (De Diego's Birthday), 4 Jul (US Independence Day), 17 Jul (Munoz Rivera's Birthday), 25 Jul (Constitution Day), 19 Nov (Discovery Day), 25 Dec (Christmas). Variable dates: Epiphany (Jan), Washington-Lincoln Day (Feb), Good Friday, Memorial Day (May), Barbosa's Birthday (Jul), Labour Day (Sep), Columbus Day (Oct), Veterans' Day (Nov), Thanksgiving (Nov).

Working hours: Business: (Mon-Fri) 0800-1700. Government: (Mon-Fri) 0800-1630. Banking: (Mon-Fri) 0830-1430. (Exceptions: some banks 0830-1700; some banks open Sat.)

Telecommunications: In February 1999, the US Federal Communications Commission approved the privatisation of the government-owned Puerto Rico Telephone Co (PRTC), to a consortium led by GTE of the US for just over USD2bn.

The proceeds of the sale are to be used to finance infrastructural improvements in Puerto Rico.

The telecommunications infrastructure base will have to be continuously upgraded in order to accommodate the increasing demand.

Telephone and telefax: Direct dialling and fax facilities are available at all main hotels.

Dialing code for Puerto Rico: IDD access code + 787 (sole code from 31 January 1997) followed by subscriber's seven-digit number.

Banking: Financial deregulation and consolidation in the industry have improved operating conditions. At the end of September 1998, commercial bank deposits reached about USD25.8bn, compared to USD22.4bn in June 1994. Bank assets have also continued to expand.

Central bank: There is no central bank. Such functions as fiscal agent for the Commonwealth of Puerto Rico and its public entities, and the provision of development loans to the public as well as the private sector, are undertaken by the Government Development Bank for Puerto Rico (GDB).


  • Corporate income tax: 39 per cent *
  • Capital gains tax: 25 per cent. Branch tax: 39 per cent *
  • Personal income tax: 33 per cent

* This is the maximum rate. An alternative minimum tax is also imposed.

There is a tax incentives law with an effective tax rate as low as 2 per cent and a maximum of 7 per cent for manufacturing and export-oriented services.

Electricity supply: 120 V AC.

Useful tips: The business culture is American, so do not expect a manana approach to appointments. In doing business on the island, a visitor should take the same approach as one would on the US mainland.

Allow time for San Juan's traffic jams when going to meetings.

PUERTO RICO: Country Profile

Historical profile
1493- The island was inhabited by some 100,000 Taino Indians (an Arawak culture that also occupied most of Hispaniola and part of Cuba) at the time of the first European sighting by Columbus. A member of the expedition, Juan Ponce de Leon, was given permission to settle the island, which he named San Juan.

1898- The island was ceded to the USA by Spain at the end of the Spanish-American war. The US ruled it as an unincorporated territory.

1917- The inhabitants became citizens of the USA.

1948- Puerto Rico elected its first governor.

1952- A new constitution designated Puerto Rico a self-governing commonwealth within the USA.

1967- A plebiscite rejected the option of becoming a state of the USA.

1993- The statehood option was rejected for a second time in a national referendum.

1998- In December Puerto Ricans again narrowly rejected the option of statehood in favour of maintaining the consitutional status quo.

Political system
The island is a self-governed commonwealth within the US constitutional system.

The local government consists of executive, legislative and judicial branches. Puerto Rico has 78 municipal governments.

Detailed laws governing the status and relationship of the Commonwealth of Puerto Rico with the United States cover, among other aspects: military conscription, tax and trade, social security, citizenship, constitutional changes, internal autonomy.

The governor of Puerto Rico is elected by popular vote in November every four years, along with Puerto Rico 's Resident Commissioner to the US Congress, as well as all legislative and municipal officials throughout the island.

The governor heads the executive branch, and is the head of state and chief commander of the state militia.

Cabinet members, consisting of department secretaries and other agency heads are appointed by the governor with the advice and consent of the Senate.

The legislature is the bicameral Legislative Assembly: the Senate (27 members - 16 from the eight districts, 11 on wider franchise) and the House of Representatives (51 members - 40 from constituencies, 11 on wider franchise). The term for both Houses is four years and representation of minority parties is constitutionally guaranteed - from a quarter to one-third of seats in each chamber.

The legislature convenes each year from January through April, but the sessions usually extend into May or June to complete pending legislation.

Membership in the legislature combines proportional and geographic representation. Two senators are elected from each of the island's eight senatorial districts. Puerto Rico has 40 representative districts, each of which elects one member to the House of Representatives. Eleven additional representatives and senators are elected for at-large seats.

Last national elections: 5 November 1996.

Next national elections: due by November 2000.

Political parties
Government: Partido Nuevo Progresista (PNP) (New Progressive Party).

Opposition: Partido Popular Democratico (PPD) (Popular Democratic Party); Puertorriqueno (PIP).

Extra-parliamentary opposition: Nuevo Movimiento Independentista (NM); Congreso Hostosiano.

Annual population growth rate 1.2 per cent (1990-96). Life expectancy 75 years (1996). Infant mortality rate 12 per 1,000 live births (1996).

The population density is one of the highest in the world - 406 inhabitants per sq km.

Around three million Puerto Ricans reside in the USA. Thousands commute seasonally.

Ethnic make-up: Fusion of three main cultures: native Indian, European and African.

Religions: About 85 per cent of the population is Roman Catholic. Protestant denominations are also represented.

Religion has traditionally played an important role in the island's history. The religious groups have been instrumental in fostering community co-operation and providing health and educational services.

Main cities/towns
San Juan, capital (population estimated at 1.4m in 1997), Bayamon (232,000), Ponce (190,000), Carolina (189,000), Aguadilla, Arecibo, Caguas, Mayaguez and Guaynabo.

Although English and Spanish are official languages, Spanish is the primary language of the vast majority of Puerto Ricans.

English is an important second language. It is taught in public and private schools from first grade through high school and also in college.

Government affairs are conducted in Spanish.

Press: Three main dailies, of which the largest are El Vocero de Puerto Rico, El Nuevo Dia and San Juan Star (English).

Weeklies include Caribbean Business.

Broadcasting: Around 115 national commercial radio stations and nine television stations.

Domestic economy
Rapid industrialisation and dramatic economic growth have improved the standard of living in Puerto Rico, which is considerably higher than the rest of Latin America and most of the Caribbean Basin, although it is lower than any of the 50 states of the USA.

Government-sponsored economic development programmes contributed to average GDP growth of 3.8 per cent per annum from 1983-89. The recession in the USA lowered the growth rate between 1990-92 but it increased again to 3.3 per cent in 1993 and has remained at around 2-3 per cent since then.

In response to rapidly changing global markets and to ensure future sustainable economic growth and social development, a New Economic Model was created in 1994 which continues to request foreign investment but also stresses promotion of local entrepreneurs and the emergence of a capital market. The New Economic Model recognises that the USA will continue to be the principal market, but in order to acquire other markets for products and services, the government opened offices in Panama, the Dominican Republic, Costa Rica and Chile to encourage trade, investment and tourism.

The manufacturing and service industries comprise the principal sectors of Puerto Rico 's economy, with the public sector also traditionally playing a key role.

In August 1996 the US Government repealed Section 936 (under which US companies establishing subsidiaries in Puerto Rico benefited from state subsidies) with associated benefits to be phased out over a 10-year period by 2006.

In 1997 the services sector (trade, finance and services) contributed 58 per cent to GDP and employed 48 per cent of the workforce.

After several years of neglect, USD3bn is being spent on improvements to water supplies, electricity, public transport, airports, seaports and roads.

The government's long-term plans are to diversify the economy away from relatively low-tech manufacturing towards a broader base of high-tech and services.

Labour market
A highly-skilled, well-educated, bilingual bicultural workforce. Two-thirds of the workforce has completed 12 years of education or more and almost one-third has had some training at college level. Absenteeism is 9 per cent lower than in the mainland USA.

US minimum wage laws apply and are paid to a much larger percentage of the labour force than on the mainland.

About 36 per cent of the workforce is female.

External trade
There has been a regular trade surplus since 1985 due to increased exports of manufactured goods. The balance of payments is, however, still reliant on US federal aid flows.

Puerto Rico ranks among the 10 largest world customers for mainland US products. The USA accounts for over 75 per cent of the island's imports and exports, much of which are intra-company shipments of parts from US companies and exports of finished goods in return. This flow of materials and products creates profits for private companies and jobs for workers in Puerto Rico and the USA.

Other major trading partners include Japan, the Dominican Republic, UK, Venezuela and a number of neighbouring Caribbean countries.

The Free Trade Area of the Americas is to be created in 2005. With this in view, Puerto Rico is hoping to transform itself into a 'trade bridge' between North and South America, and between the Americas and Europe.

Exports: Principal exports are medical drugs, office, computing and accounting machines, beverages, surgical medical and dental instruments and supplies, industrial organic chemicals, communication equipment, soap, detergent and cleaning preparations, perfumes, cosmetics and other toilet preparations, agricultural chemicals, miscellaneous food preparation and kindred products, electric transmission and distribution equipment.

Main destinations: USA (88.5% of 1996/97 total) Dominican Republic (3%, Japan (1%).

Imports: Principal imports: medical drugs, motor vehicles and equipment, industrial organic chemicals, petroleum refining, electronic components and accessories, surgical, medical and dental instruments and supplies, miscellaneous food preparation and kindred products, office, computing and accounting machines, crude petroleum and natural gas, miscellaneous manufacturing equipment.

Main sources: USA (62.3% of 1996/97 total), Dominican Republic (5.5%), Japan (4.1%).

The agricultural sector is small-scale, contributing around 1 per cent to GDP in 1997 and employing 3 per cent of the workforce.

Only 10 per cent of land is suitable for agriculture. An additional 25 per cent of the island is composed of uplands, partially suited for certain agricultural purposes.

Dairy and livestock farming is of increasing importance.

Farming on the island has changed considerably since the 1940s and 1950s, when traditional small farming methods prevailed, and sugar- cane, coffee and tobacco were the dominant crops. Of these, only coffee has survived, but it lags behind milk and poultry production. Milk production accounts or 34 per cent of total gross farm income.

Around 50 per cent of food requirements are met by imports.

Almost all of Puerto Rico 's farm output is consumed locally, although small quantities of coffee are exported to Europe and Japan, and some fruit and vegetables, mangoes, tomatoes and onions, also go to Europe.

In its effort to encourage farmers to diversify and invest in modern, efficient commercial farming projects, the government offers generous incentives, including a 50 per cent tax incentive credit (Law 225).

The gross agricultural income for 1997/98 fiscal year reached a six- year high of over USD700m.

In September 1998, Hurricane Georges caused losses to the agricultural sector amounting to USD300m. Nevertheless, because infrastructure modernisation was under way before the hurricane, by 1999/2000 fiscal year, it is anticipated that the sector will have recovered completely.

The industrial sector forms the mainstay of the economy, contributing around 41 per cent to GDP in 1997, and employing 24 per cent of the workforce. The sector accounts for 98 per cent of exports.

Manufacturing contributes some 40 per cent to GDP. Most of the island's manufacturing output is shipped to mainland USA.

Industrialisation has been the focus of government economic policy since the late 1940s when a programme known as Operation Bootstrap was launched. In 1950 there were 82 industrial plants in Puerto Rico, but by 1965 there were around 1,000. Since then industrial development has tended to be more capital intensive and dependent upon highly skilled labour.

Production is centred on food processing, textiles, petrochemicals, rum distilling, pharmaceuticals, metal fabrication and assembly of electrical/electronic components.

Section 936 of the American tax code which made profits earned on the island tax-free for American multinationals was revoked in 1996.

Most of the assembly industries are US-owned and are heavily dependent on the US market.

The US Commerce Department's Foreign Trade Zones Board has approved the conversion of all the island's industrial parks into free trade zones (FTZs). This, together with Puerto Rico 's generous incentives package and skilled workforce makes the island a prime destination for a company looking to expand or relocate. The period for approving applications for FTZ operations has been cut from 18 months to 90 days, reducing the cost of applications from USD150,000 to USD5,000.

The island's agricultural industry makes an important contribution to the economy through the food industry services of prepared food and retail sales.

Construction expanded by 15.6 per cent in 1998, and reconstruction activity is expected to increase in 1999 due to the damage caused by Hurricane Georges in September 1998.

Tourism is an important sector. About 70 per cent of visitors come from the USA.

At least USD25m a year has been spent on the promotion of Puerto Rico as a mix of Caribbean and Latin America, but with an American business culture.

According to the Puerto Rico Tourism Company, 23 properties were opened between 1993-97, with total investments of USD843.8m. The number of hotel rooms has increased by over 50 per cent to more than 12,000 and the number of jobs in the sector has soared to 13,500, some 4,500 more than in 1992.

Visitors totalled 3.4m in 1998 compared to 3.2m in 1997; tourist spending was USD2bn in 1998 compared to USD1.9bn in 1997; the hotel occupancy rate was 72.5 per cent in 1998 compared to 73.3 per cent in 1997.

Minerals and mining
Activity in this area is extremely small - production is centred on non- metals such as stone, sand, salt and clay.

There are small reserves of copper, nickel, cobalt, iron, chromium, lead, gold and silver (not quantified).

Puerto Rico depends on imported energy fuels, mainly from Venezuela and the Netherlands Antilles.

In September 1998, Hurricane Georges caused storm damage to transmission and distribution infrastrucure, estimated at USD200m, 90 per cent of which will be covered by the Federal Emergency Management Agency.

Demand for power is growing at 3.5 per cent a year. Several plants are under construction and will be commissioned by 2002, and additional capacity is also being provided through the refurbishing of some of the government-owned Electric Power Authority (Prepa) power stations. Prepa is the second-largest public utility in the US, with 1.3m clients; generating capacity of 4,400MW and peak demand 3.057MW (March 1999).

Prepa is spending USD1.9bn during the period 1999-2003 to improve generating, transmission and distribution infrastructure.

Legal system
US-style court system operating within the commonwealth, with the island also operating as a US district, with justices appointed by the president of the USA. Although it is a US-style court system, it is based not on common law, but on the Napoleonic Code.

The constitution guarantees the independence of the judicial branch from the executive and legislative branches. Judges are forbidden from participating in political activities. They are appointed by the governor with the advice and consent of the Senate. Judicial system consists of the Supreme Court, the Court of Appeals, and the Court of First Instance. The decisions of the Supreme Court can only be appealed to the US Supreme Court. There is also a Federal District Court (FDC) in San Juan; decisions from the FDC may be appealed to the US Court of Appeals for the First Circuit and to the US Supreme Court.

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