A Business Guide to Puerto Rico. (Caribbean Business to Business Guide)

Puerto Rico is a dynamic, economically progressive society in which the sight and sounds of business at work in the 90s are as commonplace as those images that typically come to mind when the words "Caribbean island" are mentioned.

Much of what Puerto Rico is today is credited to Luis Munoz Marin, the island's first elected governor and the father of the Commonwealth. Under his leadership, Puerto Rico began an economic reform program in the 1940s known as "Operation Bootstrap." The program, which touted industrialization as the most effective was to pump life into the island's fledgling economy, offered low-cost manufacturing facilities and a variety of local and federal government tax incentives to potential investors.

The program's success is evident today in the hundreds of U.S. mainland and multinational companies operating production facilities in Puerto Rico. These companies, along with a growing number of domestic firms, are responsible for transforming Puerto Rico's work force and economy into a highly-sophisticated, manufacturing-based system, which continues to stand as a model of economic development throughout the world.

Puerto Rico's rapid industrialization has generated a wealth of business opportunities for a corps of support services including wholesale, and retail commerce, banking and finance, telecommunications, insurance and real estate. As a result, jobs are created, and the island's 3.6 million inhabitants enjoy the highest standard of living in Latin America.

Today, Puerto Rico's government-sponsored industrialization program continues under the auspices of the Economic Development Administration (Fomento). New emphasis is being placed on attracting European and Asian investors while developing local capital industries, particularly in the areas of tourism, agriculture and professional and financial services.

A Capsule History of Puerto Rico

Puerto Rico's entrance onto the world stage began on November 19, 1493 when Christopher Columbus, on his second voyage to the New World, discovered the island. Legend has it that upon his return to Spain, Columbus described the island to the king and queen by crumpling a piece of paper to demonstrate its topography -- a mountainous center surrounded by narrow coastal plains.

Though it is the smallest island of the Greater Antilles -- behind Cuba, Hispaniola and Jamaica -- Puerto Rico's strategic eastern most position in the island chain has traditionally made it an indispensable and valuable asset. Spanish crown officials referred to Puerto Rico as "the strongest foothold of Spain in America."

For this reason, much of Puerto Rico's history during the past 500 years has been shaped by external struggles and the close association with nations of greater economic, military and political power -- nearly 400 years with Spain and now nearly 100 years with the United States of America.

Puerto Rico's modern history can be divided roughly into three periods. The first period began with the arrival of Columbus in 1493 and ended in 1898. In that year, as one of the spoils of the Spain-American War, Spain ceded Puerto Rico to the United States in the Treaty of Paris.

The second period in Puerto Rico history witnessed the passage of several key pieces of legislation. In 1900, the Foraker Act defined Puerto Rico as an unincorporated territory of the United States, a relationship that continues to this day.

In 1917, a second federal law involving Puerto Rico was passed by the United States. The Jones Act granted U.S. citizenship to Puerto Rico and established certain economic parameters which still exist.

Although the Jones Act liberalized some aspects of the Foraker Act, governors of Puerto Rico were appointed by the president of the United States until 1948, when in the first free election Luis Munoz Marin became governor.

Then in 1952, the third and current period of Puerto Rico's modern history began with the passing of the Public Law 600. This law established Puerto Rico as a Commonwealth or Associated Free State, which is the literal Spanish translation of the status.

As a Commonwealth, Puerto Rico elects its own governor and both houses of Legislature, but is still subject to federal laws. Puerto Ricans cannot vote for president of the United States, because the Electoral College system is based on the number of Senators and Representatives in Congress. Puerto Rico does, however, vote in presidential primaries.

Additionally, Puerto Rico has no voice or vote in the U.S. Senate, though is does have a voice, but no vote in the U.S. House of Representatives, except on committees.

Puerto Ricans do not pay federal income taxes on Puerto Rico-source income, although they do pay such taxes on U.S. source income, including, among others, all local employees of the federal government.

Puerto Ricans serve in the U.S. military, as was evident during last year's Persian Gulf War.

Politics and Government: Deciding Puerto Rico's Political Future

The question of political status continues to dominate Puerto Rico's political arena as island voters wait to cast their votes in a plebiscite which could, once and for all, provide the answer to the island's political future.

For the past 50 years, two main parties -- each favoring a different political status -- have waged distinct campaigns for power on the island. The Popular Democratic Party (PDP) favors continued commonwealth status with the U.S. The New Progressive Party (NPP), as did its predecessors, advocates permanent statehood within the Union. The Puerto Rico Independence Party (PIP), which represents a small minority, favors a republic independent of the U.S.

These positions -- commonwealth, statehood and independence -- form the basis of choice in local elections.

Commonwealth Government

The relationship between Puerto Rico and the United States is unique in so much as the island is neither a state of the Union nor a U.S. Territory. Instead, since 1952, Puerto Rico has been a Commonwealth of the U.S. with its own constitution and elected government.

Similar to the U.S., Puerto Rico's government operates with executive, legislative and judicial branches. The Legislature is comprised of a Senate and House of Representatives which currently have 27 and 51 members respectively.

Politics is often referred to as the national sport of Puerto Rico as political debate never ceases. All elective offices on the island, including municipal, are filled in a single general election held once every four years. Elections are conducted on the same date as the national presidential election. Therefore, this year's political activities promise to be nothing short of dynamic as local candidates campaign and ready island voters for elections in November. Typically, voter turnout in Puerto Rico is high, with up to 85% of eligible voters going to the polls on election day.

The question of political status can be addressed officially through a plebiscite, which initially must be passed by the U.S. Congress. In early 1991, after months of debate and consideration, a proposed plebiscite for Puerto Rico was defeated in a vote held by the U.S. Senate Energy and Natural Resources Committee.

If the referendum had passed, it would have provided island voters with three status choices -- Commonwealth (with some changes or "enhancement"), statehood or independence. The alternatives are represented by the island's three political parties: the Popular Democratic Party (PDP), which favors Commonwealth; the New Progressive Party (NPP), which wants the island to become the 51st state of the Union and the Puerto Rico Independence Party (PIP), which wants an independent republic.

While political attention is focused on the 1992 elections, once November passes, a renewed push for a plebiscite cannot be far behind. Some speculate that a referendum could be passed as early as 1993.

Outside the realm of debate on political status, the Commonwealth government is highly centralized. As of June 1991, there were some 927,000 persons employed in Puerto Rico of which 267,000 were employed by the public sector, making government the island's biggest employer.

Puerto Rico government has more than 110 departments and executive agencies including Treasury, Education, Health, Labor and Commerce.

The Government Development Bank for Puerto Rico (GDB) is the island's fiscal agent, with authority to issue bonds to finance various capital improvements and infrastructure improvements for the central government, its agencies and dependencies and its public authorities and corporations. The GDB also helps finance private economic development projects.

The Economic Development Bank, an adjunct to the GDB, helps finance smaller projects with loans or loan guarantees. AFICA, the bond-issuing arm of the GDB, has financed multi-million dollar hotels, office buildings and other projects. Tax-exempt and bearing relatively low interest, the bonds must be backed by the applying company's own credit or with credit enhancement from other institutions.

Occasionally, the GDB will back a part of the bonds. AFICA is the Spanish acronym for the Puerto Rico Industrial, Medical, Higher Education and Environmental Pollution Control Facilities Financing Authority. It has been the principal source of money for many tourism-related developments.

The Economic Development Administration (Fomento) promotes Puerto Rico as an industrial development site and arranges corporate tax exemptions under the Tax Incentives Law. The real estate arm of Fomento, the Puerto Rico Development Company (Pridco), can rent investors a government-owned plant and help them establish operations on the island.

The Puerto Rico Planning Board and the Regulations and Permits Administration (ARPE, from its Spanish name) handle all aspects of planning land use and granting construction permits on the island. The Planning Board establishes tourism and historic zones; ARPE grants variances. Both agencies work closely with the Environmental Quality Board and the Natural Resources Department. They can call for environmental impact studies to determine the suitability of development projects for certain areas.

The issuance of permits for new resort complexes and hotels also involves these agencies. The Puerto Rico Tourism Company, however, is responsible for promoting the island to developers, investors, hotel chains, tourists and travel press. It runs advertising campaigns in the States and parts of Europe.

Public corporations include the Aqueducts and Sewers Authority, which handles all matters involving treatment and distribution of potable water, and treatment and disposal of waste water. Refer to our Mini-Directory of Commonwealth Government offices for a full list of departments and agencies.

Current Economic Characteristics of P.R.

Despite the economic uncertainty triggered by the Persian Gulf crisis and the U.S. recession, Puerto Rico's economy was expected to grow during fiscal year 1991, continuing a trend of economic expansion.

According to the Puerto Rico Planning Board, the local economy was estimated to have grown by 1.26% during fiscal year 1991. Economic forecasts for 1992 and 1993 are calling for growth rates of 2.74% and 2.6% respectively. In fiscal year 1990, Puerto Rico's economy grew by 2.2%.

The growth of the island's GNP in recent years is attributed to healthy activity in manufacturing, private sector capital investment and increases in government spending.

Manufacturing's domestic net income for fiscal year 1990 was more than $11.2 billion, up some 9% from the previous year's figure of $10.2 billion.

Construction spending also increased, totaling $2.6 billion during fiscal year 1991. This is an increase of 7.5% over 1990's spending figure of $2.4 billion. Preliminary projections for 1992 call for $2.8 billion in construction spending.

Tourism has also contributed to the island's economic growth. Preliminary figures from the Puerto Rico Planning Board show that 3.5 million visitors came to the island during fiscal …