Financial Times (Oct. 23, 2013) (Letters)
Sir, With reference to John Dizard’s article “Puerto Rican muni bonds – a new ‘West Side Story’ ” (View from America, FTfm October 21): whatever shape a restructuring of Puerto Rico’s debt takes, one component is essential – the removal of policies that divert Puerto Rico from using its true comparative advantages.
The island needs to abandon its notion that it deserves permanent membership in the world’s high-tech manufacturing economy. Consisting principally of pharmaceuticals and high-tech products, its manufacturing sector owes its tenuous existence to federal tax breaks that expired in 2006.
While tax-deferred earnings are still possible, other jurisdictions offer this benefit along with lower costs. Moreover, offshoring is under siege by the US and other members of the Group of 20. Yet the government continues to drain the treasury with local tax breaks for this industry. Compounding the problem is a self-regard that deems tourism as beneath the dignity of island residents. This explains Mr Dizard’s observation that the island has a “surprisingly small tourism trade”. Tourism receipts account for less than 4 per cent of the island’s gross domestic product. Its hotel rooms total about 14,500. Compare that with Hawaii’s 45,000 rooms and 20 per cent of GDP.
More than tourism, Puerto Rico has significant unexploited resources as a major entertainment and sports venue. Puerto Rican talent is known throughout the world. Jennifer Lopez moves the fashion and music world. Bruno Mars will be the marquee entertainer at the next Super Bowl. Carlos Beltrán and Yadier Molina lead the St Louis Cardinals in the World Series.
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A major opportunity arrived this year when the government acquired Roosevelt Roads, a former US naval base on the east coast. The base has airport grounds larger than San Juan’s main airport. Its two harbours face the unparalleled scenery of the Virgin Islands. Enough land exists to build a world famous entertainment city.
Yet the government may squander this opportunity by persisting with “defending” what’s left of the high-tech sector. Following the same futile path, it proposes to use key areas for manufacturing and science education.
The recent upheaval in Puerto Rico bonds should serve as a message about unrealistic growth policies. I hope the administration gets it.
David R. Martin, Atlanta, GA
