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Financial Times - USA Edition

Puerto Rico Changing Even As It Seeks To Stay The Same

Financial Times Survey: Puerto Rico

Richard Lapper and Canute James

March 11, 1999
©Copyright 1999 Abstracted from the Financial Times, Source: Dow Jones & Company, Inc.

Puerto Rico voted last December not to seek statehood but to retain its status as a U.S. territory, giving Puerto Ricans U.S. citizenship while preserving their Latin American culture.

However, as Cuba enters more and more into regional agreements with Puerto Rico 's Caribbean neighbors, the island must still continue to yield on foreign policy to U.S. wishes. As a result, it is becoming isolated from the Caribbean community economically and politically, leaning more heavily on the U.S.

The current governor of Puerto Rico had sought statehood as an important step in his economic-reform effort, turning the economy from an industrial base to a "knowledge" base. The voting population decided otherwise. However, his ambitious plan has already seen some success, since the privatization of many government companies has resulted in lower prices and improved service.

The government seeks to promote technology-based businesses to build on the strength of Puerto Rico 's growing pharmaceuticals business. An important impetus for reform has been the expected U.S. decision to phase out Section 936 of the U.S. Internal Revenue Code, which prevents taxes being levied on profits that remain on the island.

The reforms emphasize the service sector, and a new program of tax incentives is especially generous to companies investing in education, training, research and development. Jobs have been lost in the manufacturing sector, a main sore point for critics of the current government, but some impressive successes remain. Water- and electric-supply problems are expected to improve as a result of privatization and investment.

Telecommunications and transportation are also being expanded.

The government sees ultimate success down the road, comparing the current reforms to "Operation Bootstrap," the policies under which the island moved from an agrarian-based to an industry-based economy. Those reforms, the government points out, took a decade or two to take effect.

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