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Este informe no está disponible en español. CARIBBEAN BUSINESSMinding Our Businesses: Part IITop Gubernatorial Candidates Share Their Visions And Proposals For Guiding Puerto Rico’s Economic DevelopmentBY YVONNE GARCIA & LUCIENNE GIGANTEJune 22, 2000 Editor’s Note: This is the second installment in the CARIBBEAN BUSINESS series on the economic platforms of the two major candidates for governor, Sila Maria Calderon of the Popular Democratic Party (PDP) and Carlos Pesquera of the New Progressive Party (NPP) discuss their proposals on manufacturing, retail, small business, banking and finance. Don’t miss the candidates’ views on tourism, the environment, trade, transportation and others next week. Despite repeated requests, Popular Independence Party (PIP) candidate Ruben Berrios could not make himself available for an interview. If and when he does, CB will bring you his economic platform.
Retail commerce has become one of the leading job generators in Puerto Rico. And yet some criticize the ever-increasing number of shopping malls around the island. How will you strike a balance between the market’s demand for more modern retail offerings and the needs of small retailers, particularly in town centers? That is a conflict and a challenge, and is among the complaints that I’ve heard from business owners in town centers. We are, in effect, reaching full capacity in the area of commercial projects. That area is pretty well attended to. Still, that doesn’t mean that we can’t consider other projects. It means that we must be more selective and allow communities to participate more in the approval process for those projects, not just from the environmental point of view, but from the commercial one as well. We have to view proposals within the context of what is available and what can supply the economic demand. Town centers must also play a role by improving their offerings, in terms of the experience for consumers. There are places that haven’t modernized in 40 years. They lack such things as air conditioning and fail to provide a pleasant shopping environment. That has nothing to do with comparing them to malls, it’s about comparing them with themselves. Step into a modern store and you can tell it’s successful. Go somewhere else and you can immediately see they’re not successful. This is not about complaining about the malls and new commercial centers but about improving the experience in town centers, which have positive assets such as being near doctors offices, post offices, tax collection centers and cafeterias. The attractiveness of traditional town centers has to exploited. We have to improve parking and access to these areas to enhance the experience. In the end, we have to be selective about the type of development we allow. We need more involvement by community residents and business owners in the approval process of these projects and, at the same time, improve what traditional town centers offer and search for incentives to make that experience a more positive one. According to the U.S. Census, small businesses generate 63% of all new jobs in Puerto Rico, contributing to 48% of our gross product. If elected, what are your plans to help promote more small businesses in non-traditional areas, especially in the island’s interior? Local commerce and small businesses are crucial for our future development. These areas represent the best of local business people, the ones who have initiative and take advantage of the opportunities available in this era. They are also the ones that have carried the heavy weight of excessive taxes and oppressive regulations passed under past Popular Democratic Party administrations. The NPP has strengthened this sector by relieving its tax burden and following the concept of government acting as facilitator. My commitment is to continue to strengthen the small business sector through a government that creates the conditions necessary to increase productivity and to take maximum advantage of modern technological advances. To improve the business climate, we will create mutual cooperation agreements with Puerto Rico’s Chamber of Commerce, Manufacturers Association, Puerto Rico Products Association, the Hotel & Tourism Association, United Retailers, and other important associations and professional groups. We will establish, and I will give my utmost importance to a Centro de Gestión Unica para Permisos (One-stop Permitting Center) under the Department of Economic Development and Commerce to include all agencies that grant permits to businesses that will operate in areas that have already being built. Part of this effort will be to accelerate permitting processes for business in locations previously designated as commercial areas. We will conduct marketing studies in the Commerce Development Administration to identify opportunities for businesses and micro-businesses and we will provide education related to these new-found niches. To develop these enterprises, we will make available Puerto Rico Industrial Development (Pridco) buildings for business-incubation programs promoted by the Commerce Development Administration. We will develop an Internet page with the necessary information to locate and establish links among businesses, human resources, technical services, and to facilitate research and development centers in Puerto Rico. We will promote the development of buying groups in the private sector to take advantages of economies of scale. We will evaluate providing small businesses a staggered subsidy during a transitional period to help alleviate the effect of possible increases in federal minimum salary. We will establish a venture loan program to cover equipment, initial costs, and working capital up to $25,000 for a five-year term, with a grace period from six to 11 months before payments are due. The program will be directed to start-up microbusinesses with a business plan. We will expand the Corazon del Pueblo program by assigning it more resources, with special attention to increasing traffic, sales, parking areas, thus making the center more attractive. We propose a new Corazon del Pueblo law to require other agencies to grant priority to the program. This law will provide for the creation of Special Commerce Development Zones, to promote the development of mini-shopping centers and parking areas in town centers. The idea is to facilitate and provide incentives for the establishment of modern commercial areas in town centers, including the rehabilitation and/or reconstruction of commercial and residential developments. We will consider exemptions of up to 10 years for urban redevelopment. What actions would you undertake to develop a local capital market? Our financial sector is strong and modern. In Puerto Rico, we have access to the largest and most liquid financial market in the world. I am committed to accommodate local laws to these realities. My interest is also to provide incentives for local investors to invest in Puerto Rico. It is necessary to increase venture capital formation in Puerto Rico and the government has an important role in doing so. To improve the situation, my economic program includes measures to create Research Institutes co-financed with federal funds in collaboration with universities. These multidisciplinary institutes will provide competitive niches in strategic areas in the local manufacturing and service sectors. Through an executive order, I will require economic development and infrastructure agencies and public corporations to earmark and invest an adequate amount proportional to their annual budget for research and development activities in their respective fields. We will strengthen capital investment funds in Pridco and the Economic Development Bank to invest in budding enterprises in technological fields. The purpose is to provide financing to these companies until they reach a stage in their development that allows them to resort to private capital investment funds. We will co-sponsor a network of business incubators in consortium with the private academia, which will nurture and cultivate the development of high technology and electronic commerce. The government will motivate and assure that risk capital investment programs--private and public--direct efforts towards the promotion of initiatives centered in technology and new products with potential of impacting the economy. What specific measures would you adopt to improve Puerto Rico’s poor savings rate? As I have mentioned, we propose to double Individual Retirement Account (IRA) contributions to $6,000 on a staggered basis through the first four years and 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. 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 project that as part of your retirement. Section 936 of the Internal Revenue Code will be phased out by 2005 and there is no guarantee the U.S. Congress will approve the Section 30A wage credit. What’s your assessment of that situation? There already has been a change in strategy to sell 30A on why it’s important to the U.S. in addition to why it’s important to Puerto Rico. I agree with that strategy of showing a Congressional representative or senator why 30A is good for his or her district. We did that with the Urban Train by selling it to key senators and representatives as being important to them. We told them it was important because we would buy the steel in Florida and the train cars in California. We also need a more direct and personal involvement with Congress by the governor. I’ve learned that Congress members are more interested in dealing directly with the top official than with a lawyer or lobbyist. Also, we have the advantage that companies have started to quietly convert to Section 901, for Controlled Foreign Corporations, which gives them similar tax breaks as Section 936. I support that process of conversion. Still, for companies that depend on 30A, mostly those in the apparel industry, we need to seek the permanence of 30A and I’m committed to fighting for the permanence of that Section. What, other than seeking federal tax incentives, would be your strategy to strenthen the island’s manufacturing industry? In the manufacturing area, I want to assure the people of Puerto Rico, and your readers, that I will be a governor with a personal interest in the development and strengthening of this sector which is so important to our economy. My commitment is to adopt an active role in the promotion of the manufacturing sector. We will dedicate resources and efforts to the creation of a Research and Development Center for the New Generation of Manufacturing, aimed to transfer knowledge on the most advanced manufacturing techniques, processes, and technology to maximize productivity and reduce costs. We want to place Puerto Rico’s manufacturing industry among the most competitive in the world. We will create an agile mechanism to speed up projects and attend to issues important to the manufacturing industry. Through executive order, I will create an inter-agency task force comprised of representatives who will report directly to agency heads including the Puerto Rico Electric Power Authority, The Water Company, Regulations and Permits Administration (ARPE), Environmental Quality Board, Planning Board, Treasury Department (Hacienda), State, Department of Transportation and Public Works (DTOP). The idea is for each one of these agencies to recognize and understand the important role they play in promoting manufacturing and our overall economic development. I will create an alliance of private and public infrastructure companies for them to actively participate in efforts to retain and promote industries. We will work to promote the vertical integration of industries. This commitment is vital, because one of its aspects is to increase the use and consumption of products and services made in Puerto Rico by all industries located on the island. Another important aspect of vertical integration is to promote the establishment of the research and development, marketing, and distribution phases of multinational companies in Puerto Rico. An important initiative is to increase the credit given to industries (whether exempt or not) for purchases of products manufactured in Puerto Rico. We have also identified contract manufacturing as an area of great opportunity to strengthen the local economy. And to enhance productivity, I intend to look for options to modernize our labor laws with regard to working hours in order to accommodate modern-day realities, but I intend to do it through consensus with the working class. Despite calls for adjustments--such as increased capitation [per patient annual fee] for doctors–the government’s health reform to provide the medically indigent and others with universal health care coverage is considered irreversible. What adjustments if any will you implement? Without getting into the details of the health reform, I think there are opportunities there. We have to project ourselves as a regional health center outside of Puerto Rico. What I propose is that we promote health tourism. The health reform allows us to invest to improve tertiary facilities in Puerto Rico, such as the Rio Piedras Medical Center and the Cardiovascular Center for Puerto Rico and the Caribbean. Under my tenure, tertiary facilities such as these would continue to be operated by the government with increased resources to improve them so that people outside Puerto Rico want to come to receive treatment here. This would create a positive environment for an additional economic sector. To be continued next week. Retail commerce has become one of the leading job generators in Puerto Rico. And yet some criticize the ever-increasing number of shopping malls around the island. How will you strike a balance between the market’s demand for more modern retail offerings and the needs of small retailers, particularly in town centers? On one hand, the quality of life in town centers needs to be strengthened. On the other hand, local residents have the right to variety and convenience in shopping. My public policy affirms the densification of town centers. I believe we need to repopulate those residential and commercial areas. We need to attract people to live and establish businesses in town centers. We can do that with tax incentives, construction incentives, proper illumination, additional police force, and cleanliness. This is what people want. I propose to expand the public policies that we successfully implemented in San Juan, Santurce, Rio Piedras, and Condado. We will do this with full coordination with municipalities’ administrations. The central government needs to have a public policy to create an understanding to balance both sides [shopping centers & megastores and small businesses], because at the moment the battle is not even. The larger the megastore, the more powerful it is, while small businesses stand alone. The role of the government is to try to minimize this imbalance and help small businesses without hurting these other larger stores. We don’t want Puerto Rico’s small businesses to disappear. Some stores have just such an incredible charm. They might not carry the product variety or quantity megastores do, but they have a specific market and clientele. In Puerto Rico’s economy there is room for everyone. What should not happen is that large stores eliminate small stores because of their greater volume and economic power. My government will thoroughly study the negative impact any potential shopping center or megastore development will have on town centers or traditional commerce nearby. We will strengthen incentives and other assistance to minimize such impact on these businesses. According to the U.S. Census, small businesses generate 63% of all new jobs in Puerto Rico, contributing to 48% of our gross product. If elected, what are your plans to help promote more small businesses in non-traditional areas, especially in the island’s interior? Small businesses are the backbone of the economies in the majority of the island’s municipalities, and in many ways, they are the heroes that maintain town centers. However, there is a sense of loneliness and abandonment among the small business community because they feel they don’t have the access or political clout to have a voice where decisions are made. Although some sectors have joined forces, the government has to promulgate more incentives, specifically for the town centers. Municipal town centers have lost livelihood as stores are abandoned, security is lacking, and businesses can’t flourish. It becomes a problem that threatens quality of life. In San Juan, we’ve retained and/or created more than 2,000 new jobs in town centers with incentives created through Ordinance 11 enacted in 1997. I believe we need to speed-up incentives directed to small business stores so they can compete with megastores, which are important as well. But we can’t stop the development of shopping centers. Puerto Rico needs to keep going forward. For instance, Rio Piedras is a success story. Why? Because I’ve giving them tax incentives, tax moratoriums, security, improved public lighting. We’ve fixed the Plaza and De Diego Avenue, planted trees, hired music groups to play, and added air conditioning. It’s magnificent. But in the rest of the island, many Plazas are completely destroyed. They are like ghost towns. My proposal Polos Regionales de Desarrollo (Regional Development Clusters), which includes the development of customized plans for the island’s different zones–coastal regions, mountain zones, the west side--according to their strengths and needs. We can’t keep following public policies that only benefit the San Juan metro area to the detriment of the rest of the island. We also need to be very proactive in educating small business people. We will strengthen the resources of the Commerce Development Administration to better serve the small business sector and hearten Government Development Bank small business programs, such as the microloans. What actions would you undertake to develop a local capital market? The creation of local capital is extremely important to me. It is vital for us to create the incentives to bring back billions of dollars produced in Puerto Rico that are currently invested in mechanisms abroad. As the local capital strengthens, Puerto Rico, as a country, gets stronger, as it happens in all countries. We have developed a series of measures--basically tax incentives and others--to propel the investment in local assets. We need to help and protect the new generation of local entrepreneurs. Simultaneously, we will stimulate prestigious international firms to participate in the local capital market. We will provide incentives for the creation of a strong international banking sector. We will encourage prestigious international firms to participate in the Puerto Rico capital market. We will take advantage of our geographic position, our Latin culture, our fluency in both English and Spanish, and our common market with the U.S. to promote Puerto Rico as the Bridge of the Americas, to serve as link between Latin American and U.S. capital markets. Similarly, we will develop new ways to capitalize our financial institutions. What specific measures would you adopt to improve Puerto Rico’s poor savings rate? Puerto Rico is very much a consumer society. Puerto Ricans don’t save much. I mainly attribute this problem to the fact that we receive the same publicity, marketing and advertising of products available in the States and adopt the same consumer habits but without having their budgets. We spend and consume as if we were a rich country, and we are not. I propose to increase the limit on Individual Retirement Accounts (IRA) so that Puerto Rican families have an additional incentive to save. Simultaneously, I propose to increase the cap on exempt interest income from $2,000 to $5,000. In addition, I propose a significant tax rate reduction–from 20% to 10%--in capital gains from investments in local companies. Finally, I firmly believe in enhancing the cooperative movement as an alternative for some Puerto Rican families. Section 936 of the Internal Revenue Code will be phased out by 2005 and there is no guarantee the U.S. Congress will approve the Section 30A wage credit. What’s your assessment of that situation? We will maximize the use of the fiscal autonomy available through the Commonwealth of Puerto Rico to stimulate the development of manufacturing. This position is totally opposite to the New Progressive Party (PNP) since they don’t believe in our fiscal autonomy, which is why they gave up Section 936 in return for nothing. I support the permanency of Section 30A and maximizing the conversion of manufacturing companies into Section 901 companies [to become Foreign Controlled Corporations]. Similarly, we propose the application of new federal tax credits in Puerto Rico for the creation of direct and indirect jobs in research and development. We will promote the adoption of federal legislation in Congress to totally or partially exempt stateside companies from federal tax payments on their investments in the island. What, other than seeking federal tax incentives, would be your strategy to strengthen the island’s manufacturing industry? We have a series of proposals known as Encendiendo los Motores de Nuestra Manufactura (Turning on the Manufacturing Engines) which are ideas aimed at bringing back manufacturing to the position it had in the past. The idea is for Puerto Rico to become once again an effective competitor against countries like Ireland and Singapore. We will give manufacturing the attention it deserves, starting by elevating Pridco to cabinet level. We will develop a Bank of Manufacturing Projects, which will offer investors viable manufacturing projects, which already have the necessary government permits and finances analyzed. We will continue to promote the use of Section 901 to benefit manufacturing companies previously under Section 936 and also as an incentive for the establishment of foreign companies in Puerto Rico. Mechanisms will be provided for local management to acquire companies operating under Section 936 who might decide to terminate operations on the island. Investors who qualify will receive a 50% credit on their investment, which can be redeemed in a period of two years minimum. We will also strengthen the fight to improve Section 30A, and equally important, we will look for an exemption for Puerto Rico from U.S. cabotage laws or the Jones Act [to reduce shipping costs]. We will negotiate a group of new incentives under Puerto Rico’s Tax Incentive Law based on the needs of manufacturing companies that operate globally under diverse tax jurisdictions. These incentives can include direct subsidies for employee training, research and development, use of technology, solid waste management, and utility costs. We will also develop promotional strategies for local and foreign entrepreneurs to establish alliances and/or agreements in areas including sales, marketing, financing, capital, and technology, following global trends. Despite calls for adjustments--such as increased capitation [per patient annual fee] for doctors–the government’s health reform to provide the medically indigent and others with universal health care coverage is considered irreversible. What adjustments if any will you implement? I have expressed numerous times my commitment to maintain and improve the Health Reform by strengthening the health card, acting fairly with providers, and offering good service to medically-indigent patients. I’ve also indicated my desire not to sell Puerto Rico’s medical infrastructure. The funds designated for health should go directly to medical services, instead of administrative issues. I will improve and expand services, making the government responsible under its constitutional role to watch over the country’s health. Finally, we aim to adjust Health Reform finances in a way that can be funded with recurrent monies, thus eliminating the use of credit lines for this purpose. Finally, there has to be a redistribution of the actual risk of all participants in the Health Reform so that we can work together towards the common good. To be continued next week. This Caribbean Business article appears courtesy of Casiano Communications.
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