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Este informe no está disponible en español. CARIBBEAN BUSINESSMinding Our Businesses: Part ITop Gubernatorial Candidates Share Their Visions And Proposals For Guiding Puerto Rico’s Economic DevelopmentJune 22, 2000 Editor’s Note: As we have done in past electoral years, we present the economic platforms of the candidates for governor. We tried by all means possible to present the programs of all three candidates. For two months, we’ve attempted to interview Puerto Rican Independence Party President Ruben Berrios to no avail. He has not made himself available and, in view of developments last week, there’s no expectation that he might be anytime soon. If and when he does, CARIBBEAN BUSINESS will be pleased to present our readers the economic platform of the Puerto Rican Independence Party.
BY IVONNE GARCIA Some have compared him to Clark Kent because of his bespectacled and mild-mannered resemblance to Superman’s alter ego. Unlike Superman, Carlos Pesquera doesn’t have X-ray vision; instead he brandishes technology as a weapon to best Puerto Rico’s problems. Pesquera, 42, was dubbed a "technocrat" when he first entered government in 1992 with the then-fledgling administration of Gov. Pedro Rossello. A top honors engineering graduate from world famous University of Puerto Rico Mayaguez Campus with a Ph.D. in structural engineering from Cornell University and a career as university professor at his Mayaguez alma mater, Pesquera had no political experience when he was recruited to head the Department of Transportation and Public Works (DTPW). In a short time, however, Pesquera showed that he was a can-do person. He kept adding to his workload, including heading and turning into reality the decades-talked-about $2 billion Urban Train project, as well as reviving and reinventing the Infrastructure Financing Authority to handle severe water problems across Puerto Rico. But one thing is to manage a government agency and build giant infrastructure projects successfully and quite another to be governor of Puerto Rico. That’s precisely what Pesquera would like to do as an encore. Upon Rossello’s decision not to seek re-election for a third term in office in the upcoming election, Pesquera arose practically uncontested as the heir apparent to the New Progressive Party (NPP) top post. An unlikely candidate to many–even within his party--because of his sanguine and shy personality, Pesquera has taken to the job with a vengeance and began spewing proposal after proposal for improving further what he describes as a remarkable record of accomplishments by the administration of which he was part. CARIBBEAN BUSINESS recently sat down with the NPP president and gubernatorial candidate for an exclusive interview on his plans to address the concerns of Puerto Rico’s business community. In that two-and-a-half hour interview, Pesquera pledged that technology would permeate all of his proposals, with an aim at heightening the quality of life and government services in Puerto Rico. For Pesquera, technology is crucial in improving the health, education, security, infrastructure, and economic situation for Puerto Ricans, as well as making government more responsive, transparent, and efficient. Living up at least to part of the term "technocrat," technology is the carrot at the end of the stick Pesquera hopes will entice most voters to mark an X under his name come election day. BY LUCIENNE GIGANTE A self-proclaimed believer in Puerto Rico’s permanent union with the U.S., its citizenship, and the Commonwealth of Puerto Rico, Sila Maria Calderon sees economic development at the source of the most fundamental questions of who we are and where we want to go as a people. With a bachelor’s in political science from Manhattanville College in Purchase, New York and studies in public administration at the University of Puerto Rico, Calderon, 58, has spent most of her career in public service. She has discharged administrative functions at the highest levels during the former Gov. Rafael Hernandez Colon administration, including chief of staff (1985) and secretary of state (1988), at one point simultaneously serving duties for both positions. Calderon even has experience governing the island, often serving as acting governor during Hernandez Colon’s second term. Unlike her principal contender, Calderon has experience in electoral politics, having won an election as mayor of San Juan, Puerto Rico’s capital, in 1996. Many give her credit for uniting the Popular Democratic Party (PDP) and leading it to an upset victory in the 1998 status plebiscite, when she persuaded the majority of voters to select the None-of-the-above column, negating all the options offered. Although that was considered her triumph, the toughest race is yet before her. In an exclusive interview with CARIBBEAN BUSINESS, Calderon, PDP party president and gubernatorial candidate, discussed her proposals and plans for Puerto Rico’s economic development. Calderon refers to economic development as the spine of the PDP platform, and identifies three areas that, if elected, will hold her utmost attention. She believes technological advances at all levels are vital for Puerto Rico’s development and ability to compete in global markets. Second, Calderon will give special attention to the manufacturing sector, as she aims to bring manufacturing back to the dominant position it once held. Thirdly, Calderon is intent on further promoting economic development outside of the San Juan area, as she specified proposals tailored to each zone’s needs and strengths. Calderon seeks to promote, in her own words, "a government that brings people together." She aims to open-up the governing process, promoting dialogue and respect, where both public and private sector together develop solutions. She is strongly opposed to alienated party-line politics and hopes to ameliorate excessive political influence on government process, which she says wastes vast amounts of collective energy. Calderon says she is the ideal candidate for future governor of Puerto Rico because she will bring stability and aplomb, combined with an aggressive and proactive vision of economic development and a responsibility for quality of life, the environment and the preservation of our roots. In order to explain my vision for Puerto Rico’s future economic development, I first have to take stock of the present. Where do we come from and where are we right now? In 1993 Puerto Rico’s economy was stagnant. The Puerto Rican entrepreneur was chained down by asphyxiating regulations, excessive taxes, and a government that was not functioning. We’ve achieved a lot. We have made massive investments to renovate our infrastructure: the Urban Train, the highways, low cost housing, the Superaqueduct, the long-stalled dredging of the Carraizo reservoir, and dozens of other important projects including Tax Reform and the taxpayer’s bill of rights. All of these initiatives have unleashed Puerto Rico’s productive forces. The results have been that our economy’s gross product has almost doubled from $37 billion in 1993 to $60 billion in 1999. Our economy has been diversified. More than 200,000 jobs have been created. The unemployment rate has been reduced to a 30-year low. We’ve accomplished much. But there’s still a lot to do. I have a vision of a more prosperous Puerto Rico, more productive, with more wealth in the hands of more Puerto Ricans. A vision that puts Puerto Rico in the position that is rightly hers in today’s global economy, the one that economist and M.I.T. professor Lester Thurow calls "The Knowledge Based Economy" in his book "Building Wealth". I see Puerto Rico with an enhanced entrepreneurial spirit, generating the growth of local capital with a government that promotes and facilitates the development of all economic sectors. I have a vision of Puerto Rico relying more on its strengths and competitive advantages, sure of itself and capable of forging its future based on a free market economy, competitiveness, and productivity. For that, I believe firmly that the future of our economy must be based on education, productivity, and technology. The key to success of any economy of global reach is not to be found only in subsidies that companies may receive but in the education and training of its labor force. If you look at the U.S. and some European and Asian countries, you see they all evidence a high level of education and technological advancement. That’s what we’re after. That’s why I see my policies on education closely tied to economic development. I think the outlook is very positive because the greatest resource we have for the new economy is our human capital. During a trip to Arroyo, I found a 1972 economics book on Puerto Rico that compared Puerto Rico to other countries and its capacity to survive in terms of its mineral resources. Obviously, that comparison isn’t valid. At that time, under those terms, we had no chance to prevail. Now, because the new economy is based on knowledge and human capital, Puerto Rico has many more opportunities to succeed. That is very positive. The great challenge for the next four-year term is how to stimulate that economic growth and take into consideration our interrelationship with the global economy. I see extending that globalization to the educational system and to all levels of our society. We must get everybody to understand the changes that we have to make to adapt ourselves to reality. This includes the labor sector, which is very aware of these changes, and our educational system so that young people can become better educated, more entrepreneurial, and more sensitive to our new reality. The government must be more of a facilitator and be clear on its role to promote economic growth. CB: The objective of economic development is to increase per capita income without increasing the number of people below the poverty level. What policies would you implement to reduce poverty levels in Puerto Rico? Our objective is to have an economy that prospers. If we don’t have a strong and healthy economy, we have fewer resources to help those who are more needy. The most fundamental thing is to have the economy continue to grow solidly. We will aim to achieve a 5% growth in gross product annually and to increase per capita income 40% over 1997 levels. We all know that most of our people are productive and hardworking, and are committed to moving up when given the opportunity. The key will be to improve the educational level of people in the long term so they can have more opportunities. That’s the solution to this problem. Obviously, there are people we must help now such as the elderly and single mothers. There is always a safety net that you have to provide. But our goal has to be based on economic growth and providing more opportunities for all Puerto Ricans. CB: Have you targeted a specific number of jobs that you can commit will be created under your economic program during the next four years? How about a specific unemployment rate? We’ve pledged to achieve an unemployment rate of 10%. CB: How do you envision technology as a driving force of Puerto Rico’s future economic development? Despite all our achievements, we have a lot left to do, and that’s the key. I see technology as vitally important. We must close the gap between the technology we’re using and what is available. Technology permeates all areas of our lives. It affects security, health, education, infrastructure, and the economy. For example, there are some police stations without computers or fax machines. We can implement systems that will track stolen vehicles and provide demographic information on where the most crimes are committed and when. In health, we can use technology to better manage statistics [and identify trends and needs]. In infrastructure, we can implement intelligent transportation systems, we can better monitor the quality of the water we serve. Puerto Rico has the opportunity to make advances in productivity and competitiveness by advancing in the technological sector. That’s why I intend to create a Department of Technology and Sciences, as a cabinet level position, in order to stimulate knowledge-based economic development and thus contribute to business development in this area. Among its functions will be making technology accessible to all social classes, promoting the transfer of technology between the universities and the private commercial sector, promote research and development, and promote entrepreneurship in high-tech industries. CB: Puerto Rico is still far behind competitors, such as Ireland, in terms of science and technology development. What would you do to propel the island’s research and development sector? That’s why we’re proposing a Technological Corridor, which also is part of our proposal to strengthen regional economies. In the west, we would have a strong manufacturing sector along with the Technological Corridor. And we see this as going beyond the manufacturing issue with a vision that includes participation by bilingual schools and the private sector to create the right environment for economic growth. If we develop the western zone through a strategy that includes the municipal government, private sector consortiums, and academic institutions, we will create the proper environment for a Technological Corridor. Just like the government would provide infrastructure, the University of Puerto Rico Mayaguez Campus would provide the right environment for research and development. We would combine the development of this corridor with the development of tourism. CB: The construction industry has experienced a strong surge during the past several years. What plans do you have to continue this trend? The construction industry has been strong, not just in government construction, which was greater than the private sector’s at a given moment, but now private sector construction is greater. This is positive because it means the government’s strategy has yielded results. The government has stimulated the economy with construction which in turn has created a private sector that needs more construction to keep up with the demands of a stimulated economy. One important initiative is the Golden Triangle, which is a concept that could be better explained and better projected. This project is important because it seeks to renovate a whole district within the metro area that has been already environmentally affected. The pressure to conserve the environment is very important. We must concentrate our efforts in already developed urban sectors such as the Convention Center, Santurce, and Hato Rey. We must channel the positive energy of construction development in Puerto Rico to create new housing investment opportunities in already impacted areas. We also must promote foreign investment in Puerto Rico to that end, especially in tourism and hotels. I see the opportunity to concentrate construction development in places that don’t involve permitting problems and should be developed. There’s space in Santurce, Miramar, and Hato Rey, which will be further enhanced by the arrival of the Urban Train, which already is a reality and will complement the Golden Triangle. There are true development opportunities to concentrate construction in those areas. Puerto Rico, without affecting the environment, can keep a healthy construction industry going for several more years. That’s the key for me. Construction should not be seen as consuming green areas and landscapes. There’s an opportunity to keep the intense rate of construction without affecting the environment by recycling urban spaces. CB: What are your proposals to jumpstart the agricultural sector and encourage commercial agriculture in Puerto Rico? I think this sector is full of opportunities. We’re going to continue consuming agricultural products in Puerto Rico and we can develop industries from the entrepreneurial aspect. I’ve visited many farms and seen young farmers who recognize the importance of technology. They told me, "In the past we sowed and prayed for rain so we could have a good harvest. Now, we still pray, but we have irrigation infrastructure because water determines whether the harvest will be good or not." These types of initiatives can be encouraged through business incentives that will generate jobs. We also can provide needed infrastructure and help farmers market and promote local products, as well as setting goals to work with surpluses. For one, the farmer who plants plantains can manufacture pasteles. There is better technology for distribution and the possibility of marketing through the Internet. Puerto Rico has the advantage of having good product transport channels. You can send a pastel anywhere in the U.S. and it’ll get there tomorrow. Plus, there is a world market for exotic tropical products. If we sell plantains, we can also make plantain chips and tostones. The point is not just to sell the raw material but also process it. This area can improve and there are opportunities to introduce new production mechanisms. One important area is aquaculture. There are small farmers dedicated to harvesting very productive and economical ponds, primarily growing tilapia and shrimp. Hydroponic farming also is a new way of harvesting that offers higher productivity and better product quality. In fishing, there also is great opportunity. Although these sectors are relatively small in our economy, the sum total of their contribution creates something positive. In commercial fishing, Rincon fishermen include professionals who have changed the way they do things. For one, providing technological incentives has been positive. Where before fishermen complained that they couldn’t find fish, now that’s not a limiting factor. They have smaller, more efficient fishing boats that are equipped with sonar systems to find fish. Those who fish to provide San Juan residents can be very entrepreneurial and once they’ve finished fishing, they call their base, notify them of their catch and it can be sold then and there. We seek to give the commercial fishing sector more importance in our economy. CB: If elected, what new tax incentives would you support to promote sustained economic growth? What other measures would you implement to alleviate the burden on Puerto Rico taxpayers? Our tax policies must be tied to promoting economic growth. We all know that reduction in tax rates has resulted in savings to taxpayers of $500 million yearly, without impeding a 60% growth in the general fund revenue during the past years. Our proposals include lowering tax rates and eliminating the gradual adjustment and the basic alternate tax, or at least reduce it. That would do justice to a sector of the population that has not benefited from those tax cuts, people who could participate in additional economic activity. We will maintain a progressive tax structure, but will seek to reduce marginal tax rates. We also propose to double allowable Individual Retirement Account (IRA) contributions to $6,000 on a staggered basis through the first four years. We plan to allow people to buy their main residence, whether their first or only, with IRA funds. Also, capital gains from the sale of the main residence will not be taxed for people over 60. What’s behind these ideas? We want people to see the investment in their main residence as part of their retirement savings. If you withdraw your IRA money for a main residence, you’re keeping a real estate IRA. When you retire, you can protect that as part of your retirement. We’re also going to increase deductibles for dependents and hike the deductible for educational expenses. We also want to include Internet expenses among the educational deductibles. If you spend $180 to $240 a year for Internet service, we want you to be able to account for it as an educational expense. We’re also going to eliminate tax payments for inheritances and donations, and nix the limit on medical expense deductibles for people over 65. To be continued next week. As we begin a new century, Puerto Ricans--individually and collectively—must decide the direction Puerto Rico should go, what path we want this country, which although small, is our country, to follow. In the last 50 years of the past millennium Puerto Rico experienced an extraordinary change. The country was dramatically transformed from an agrarian to an industrial society. Now, at the beginning of a new millennium, I believe is the ideal moment to decide what is the course the island’s development should follow. While economic development stands as the spine among other components, it goes beyond that. What type of quality of life do Puerto Ricans want? How much equity do we want within different sectors? How much justice is there in terms of distribution of wealth? What type of role models do we present to our children (which they later project in their adult lives)? What concepts do Puerto Ricans have about themselves? What understanding do Puerto Ricans have of their roles as residents of Puerto Rico with ties to the U.S. but preeminently with a Latin and Hispanic identity? The answer to all these questions should provide the framework for the vision behind economic development. I want a strong and advanced economy. An economy where Puerto Rico can compete with its products and services in local and global markets, and where quality stands as the characteristic of everything coming from Puerto Rico. My desire is to benefit from the advantages of fiscal autonomy and use them to compete effectively with other countries. I visualize economic development as a service, not an objective, of that vision of Puerto Rico, a tool that provides greater justice, equality, and better opportunities for younger generations. The stronger, more aggressive, and proactive our economic development is, the more we can aspire for a better quality of life. That is why I believe economic development is the spine of our party’s platform, and within the proposals I’ve given major importance to three areas. First, the faster we immerse ourselves in technological development, the better we will be able to compete globally and offer better opportunities to our younger generations. Second, we need to balance all economic sectors and their contribution to the economy, especially to give full support and special attention to manufacturing. Third, we need to give a regional focus to economic development. For many years, the San Juan metro area has been a priority, leaving whole regions, such as the west side of the island, completely abandoned. It is vital to develop tailor-made plans for these regions, taking into account their needs and strengths. We have specific development plans for each regional sector. Also vital is the creation of local capital. There are billions of dollars produced in Puerto Rico that are invested in stable mechanisms and products abroad. For a variety of reasons, including fear and lack of incentives, Puerto Ricans don’t invest here. It is important for us to create the incentives necessary for Puerto Ricans to invest locally in order to develop and strengthen our capital. CB: The objective of economic development is to increase per capita income without increasing the number of persons below the poverty level. What policies would you implement to reduce poverty levels in Puerto Rico? One of the main tasks of a government is to promote equity among its residents for all to enjoy economic development. And at the same time, I believe in the capacity of Puerto Ricans to succeed in life. There are thousands of stories of people who have broken the poverty cycle and overcome numerous difficulties to progress in life; the majority of the cases are the result of education and self- confidence. But the fact that 60% of Puerto Ricans still live below the poverty level is something that should make us stop, think, and ask if we should continue ignoring this reality. To reduce poverty, my administration will place emphasis in three areas. First, we will ensure that all Puerto Rican homes will have access to education and the knowledge to compete and prevail. Second, we will give priority to special communities, organizing them, motivating them, and giving them the necessary tools to succeed--individually and collectively. Third, we will guarantee that in every Puerto Rican family there will be at least one member with an employment opportunity that allows them to progress. CB: Have you targeted a specific number of jobs that you can commit will be created under your economic program during the next four years? How about a specific unemployment rate? My commitment is to more than double the number of jobs created by the present administration in the past four years. CB: How do you envision technology as a driving force of Puerto Rico’s future economic development? Without any doubt, technology is here to stay. The country that doesn’t operate with the adequate technological advances is in danger of staying behind. I endorse everything that entails the integration of technology at all levels. We propose a program called Operacion Manos Tecnologicas (Operation Technological Development), a vital area of our economic platform aimed to establish Puerto Rico as a cybernetic center, promoting electronic commerce among Latin America, the U.S., and the Caribbean. We will establish a Technological Development and Information Technology Unit under the Puerto Rico Industrial Development Co. (formerly Fomento) aimed to promote projects with potential in the technology and computer sciences fields. Simultaneously, we will introduce tax incentives that stimulate investments to attract scientists, researchers, and tech-based companies to Puerto Rico. Special importance will be given to corporations specialized in high technology such as Internet-based enterprises, specifically those companies that are close to conducting their Initial Public Offerings (IPO) and have significant growth potential. CB: Puerto Rico is still far behind competitors, such as Ireland, in terms of science and technology development. What would you do to propel the island’s research and development sector? In order to establish Puerto Rico as a center of technology development and specialized manufacturing, we want to provide companies and their shareholders with tax incentives (maximum rate of taxation of 5%) and incentives to those who perform essential duties [such as research and development] within those companies (maximum rate of taxation at 10%). In addition, we propose a revision of existent education curricula at all levels to promote increased educational programs in the technology and information technology fields. I also propose that high-tech companies that establish operations in Puerto Rico have a preferential tax incentive if they decide to go public in a predetermined period of time. CB: The construction industry has experienced a strong surge during the past several years. What plans do you have to continue this trend? The construction industry has contributed significantly to Puerto Rico’s economic development in the past few years. We will continue to support and provide incentives, because construction generates a large number of jobs, moves large amounts of capital, and directly affects the availability of housing in Puerto Rico. We have a deficit of about 100,000 housing units to provide adequate housing. We will further develop programs to promote public housing. We plan to declare this the Housing Decade with the objective to build and rehabilitate 100,000 housing units during the next four years and another 100,000 units in the following four consecutive years. It is important to collaborate with industry to simplify the permitting process, which nowadays is very cumbersome and complicated. For developers, it is a horror story to obtain the required permits. We need to revise the procedures and laws to achieve an understanding directed to facilitate processes, but of course, respecting our natural resources. Once we damage the environment, even with mitigation, it is spoiled forever. Puerto Rico’s size is small and our environmental resources are limited. We need to be proactive with economic development in a responsible way. We need to end the struggle between developers and environmentalists and achieve a common meeting ground. And that is where government comes in. We will completely revise the licensing fees and taxes imposed on construction such as impact fees and excise taxes (for some types of construction) since these contributions represent about 20% of the cost of developing a project. We will create a Construction Loans Financing Fund to guarantee financing through local capital markets. In addition, we will submit legislation to create an Accessible Housing Construction Special Incentives Law, which among other things, will provide tax credits—10% of the project costs--to developers who fulfill the program’s requirements. CB: What are your proposals to jumpstart the agricultural sector and encourage commercial agriculture in Puerto Rico? Agriculture is one of the sectors that has suffered the most in the past few years, mainly in the mountain zone, the heart of Puerto Rico. In addition to visiting farmers islandwide, I held a session with representatives from all the agricultural sectors. Their need for better public policies and incentives is incredible. One of their main issues is their hardship in trying to communicate with the Department of Agriculture. In general, farmers don’t feel the Department gives them the support they look for and need. For one, why is the Department of Agriculture located in San Juan? We need to relocate it inland. Also, we need to restructure the Department to become a real ally of farmers, a catalyst for change, and a promoter of modern practices and the entrepreneurial spirit within the sector. We have three basic public policies directed to the agricultural sector. First, to maintain continuous communication between the governor’s office and the sector, since they complain that after elections, no one addresses them anymore; to give particular attention to each individual sector since they have completely different and unique problems. And most important of all, develop a local market for Puerto Rico’s products. We need to fill our [food consumption] necessities before importing refrigerated food that many times—because of price—knock our products out of the competition. For instance, institutions such as schools need to consume local agricultural products; rice and pigeon peas are healthier than a frozen burrito. We propose a new focus on the farming sector and its agriculturists. We will emphasize assistance in product marketing, facilitate access to new markets, and promote effective competition. It is vital to integrate agricultural sectors and create production groups or cooperatives to minimize costs in areas such as purchasing, marketing, and harvesting. We propose to establish an Agricultural Credit Department under the Economic Development Bank to meet farmers’ credit needs with special attention to entrepreneurial incentives. We will authorize guarantees up to $100 million to promote specific projects and to help small- and medium-size farms. Particular incentive programs will be created for the mountain zones. CB: If elected, what new tax incentives would you support to promote our sustained economic growth? What other measures would you implement to alleviate the burden on Puerto Rico taxpayers? This area is crucial for me. We need to use the tools our fiscal autonomy provides to the maximum potential. I know there is room for new developments and more creativity within fiscal autonomy. I feel comfortable saying this because I believe in the Commonwealth of Puerto Rico. I propose to thoroughly examine our Internal Revenue Laws and conduct the necessary amendments to make sure they work for the economic development of Puerto Rico as a whole. We will amend the law to retain and attract local capital that has fled Puerto Rico by reducing even more the tax rates and establishing credits to assume larger risks. Capital gains from local investments will be taxed at a reduced rate of 10%, while capital gains from investments made outside of Puerto Rico will be taxed at an 18% rate. Similarly, we will reduce the tax on capital gains from stocks issued by local entities that become public companies to a 7% rate. We are considering increasing the limits in certain tax deductions such as personal exemptions and credits for dependents. We will also seek further responsible tax rate reductions. I will remain alert to other alternatives directed to increase investments and savings in Puerto Rico while alleviating tax burdens. To be continued next week. This Caribbean Business article appears courtesy of Casiano Communications.
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