Puerto Rico

Politics:

• Analysis

  Puerto Rico politics: The 51st state?

  Puerto Rico politics: The 51st state?

  America may not want what its Caribbean outpost now does

  VOTERS may have voted for more of the same in America on election day, but in Puerto Rico they opted for decisive change. In a two-stage plebiscite--the island's fourth referendum regarding its relationship with the United States--54% of the electorate voted to change Puerto Rico's current status as a self-governing "commonwealth", and 61% wanted the new form of government to be full American statehood. It was the first time a majority of boricuas, as the islanders are known, has voted to become the 51st state. In both the last two plebiscites, held in 1993 and 1998, only 47% chose that option.

  The United States gained control of Puerto Rico in 1898, following the Spanish-American War. Puerto Rico set up its own government in 1952, and its residents do not pay federal income taxes to Washington on their local earnings. Nonetheless, it is still effectively a colony: boricuas are subject to American law even though they cannot vote for president or Congress.

  Puerto Ricans broadly agree on their preferred status: in a 1967 referendum, 60% voted for a commonwealth they were told would be gradually enhanced. In this scheme, they would keep their American citizenship, currency, defence and tax exemptions, But they would also receive long-sought-after improvements, possibly including a "compact" making their relationship with the United States permanent. They might also gain the right to control immigration, sign treaties, act independently in international groups and choose which federal laws (such as the minimum wage) would apply to them.

  Unfortunately, this proposal is legally flawed. According to Christina Duffy Ponsa of Columbia Law School the only permanent way of belonging to the United States is through statehood. Any other status approved by one Congress could be revoked later. Similarly, Congress could exempt Puerto Rico from any given law, but could not let the island exclude itself from federal legislation at will. A presidential task force has concluded that the only permissible status options are statehood, free association, continuation of the current commonwealth status or independence.

  As a result, when the ruling pro-statehood party won a legislative vote last year to hold a new referendum, it did not put "enhanced commonwealth" on the ballot. Residents were first asked whether to continue with the current arrangement, and then what other form of government they would prefer: statehood, independence or "sovereign free association", a voluntary, reversible collaboration with the United States that has been adopted by some Pacific island groups. Supporters of the status quo could choose a second-best option, but many left the second question blank.

  Support for statehood has increased over the years, as ties between the island and the mainland grow closer. There are now more boricuas in the continental United States than in Puerto Rico itself, and American film, television and sports have gained popularity. Moreover, because of the Earned Income Tax Credit, a cash-transfer scheme for the working poor, many Puerto Ricans would gain more than they lose by becoming subject to federal income tax. But even among the rich and among Puerto Ricans without close links to the rest of the United States, the framing of the question ensured that statehood would prevail among the options for change. Both independence and sovereign free association would have put the islanders' American citizenship at risk.

  The vote will not have immediate consequences. Congress would have to pass a law admitting Puerto Rico for it to become a state. With a fiscal squeeze looming at the start of 2013 lawmakers will have their hands full in the coming months. And the island's government is unlikely to push the issue aggressively following the election as governor of Alejandro García Padilla, who supports a continued commonwealth.

  Moreover, the Republican-controlled House of Representatives has little incentive to address the topic. According to exit polls, 83% of boricuas on the mainland voted for Barack Obama. Statehood would add two Senate seats and a House delegation of five, the same size as Oregon's and probably as reliably Democratic.

  Unless the island holds another vote that yields a different result, however, Puerto Rico has now officially requested statehood. If Democrats retake the House in 2014, they would be well-advised to try to add a 51st star to the flag.

  November 17, 2012

• Background

  Puerto Rico: Political forces

  Composition of Congress, Jul 2008
  (Number of seats)
  	PNP	PPD	PIP	Total
  Senate	17	9	1	27
  House of Representatives	32	18	1	51
  Source: State Elections Commission.

  Download text file (csv format)

  Puerto Rico's constitution is modelled on the US system, and provides for a governor, a legislature consisting of a lower house, the House of Representatives (51 members) and an upper house, the Senate (27 members), and a judicial branch made up of a Supreme Court, appellate courts and district courts. The political system is dominated by two main parties, whose policies are largely shaped by their views on the island's political status.

  The PPD

  The Partido Popular Democratico (PPD) was founded in the late 1930s by Luis Munoz Marin, who would become Puerto Rico's first elected governor in 1948. On the crucial status issue, the party favours maintaining the current commonwealth system. It strongly supports tax incentives for US companies to invest in Puerto Rico. It is also broadly aligned with the US Democratic Party. The PPD's candidate for the gubernatorial election in November 2004—the incumbent, Anibal Acevedo Vila— won re-election for a four-year term. However, he has faced an opposition-dominated legislature, which has complicated governance. The administration's weak mandate has been reflected in persistent difficulties in negotiations over fiscal policy and tax reform (see Economic policy). More recently, the party has suffered as a result of allegations of campaign financing fraud levelled against Mr Acevedo Vila. The governor has been formally charged and faces court proceedings in early 2009, but in spite of this he has insisted that he will seek re-election for a second term in November 2008.

  The PNP

  The Partido Nuevo Progresista (PNP) was founded in the late 1960s and has been a major political force since then. In contrast with the PPD, the PNP is in favour of statehood for Puerto Rico. The PNP has played down the significance of incentives to US companies on the local economy, which they regard as incompatible with statehood and therefore acceptable only as a transitory arrangement. Although the PNP lost the gubernatorial election in 2000 and 2004, in the latter it won the legislative election, securing a majority of the seats in both lower and upper houses, as well as the majority of mayoral posts. The PNP's president, Luis Fortuno, also holds the post of Resident Commissioner to the US Congress, the island's non-voting seat in the US House of Representatives. Mr Fortuno won the PNP's primary election in March 2008 and will stand against Mr Acevedo Vila in the November 2008 gubernatorial election. Although the fraud charges against the current governor place the PNP in a strong position, divisions within the party are hindering its campaign. Some supporters of Pedro Rossello—a former governor and defeated contender in the March 2008 primary election—are promoting him as a "write-in" candidate. According to Puerto Rican electoral law, voters are not limited to selecting an official candidate, and can instead vote for anyone by writing their name on the ballot paper. So although Mr Rossello lacks an official party nomination, his supporters are still encouraging the electorate to vote for him by writing him in. It is unlikely that Mr Rossello could win the race for governor on a write-in campaign, but he could secure sufficient votes from Mr Fortuno to cause him to lose the election to Mr Acevedo Vila.

  The PIP

  Ideological opposition to the PNP and the PPD lies in the pro-independence and labour movements and in some segments of the Roman Catholic church. These groups often coalesce into loose alliances aimed at enforcing a social and environmental agenda in opposition to the government's liberal programme. The only pro-independence party formally represented in the island's legislature is the left-leaning Partido Independentista Puertorriqueno (PIP). Although in the November 2004 election it won less than 3% of the vote, which is the minimum required for a party to remain official in Puerto Rico, the PIP quickly managed to obtain the 100,000 signatures of eligible voters required for the party to re-register. As such, it is still regarded as a political force with a loyal constituency, and has been included in congressional consultations on Puerto Rico's political status. Ruben Berrios has been the undisputed leader of the PIP since the late 1970s, but a new guard in the party is becoming increasingly restless in its desire for change at the top. The candidate for governor in the November 2008 elections is Edwin Irizarry, a British-trained economist and university professor in his late forties.

  The judiciary

  Puerto Rico's judicial branch is composed of a Supreme Court, appellate courts and district courts. The seven Supreme Court judges (a chief justice together with six associate judges) are appointed by the governor, subject to the approval of the Senate (the upper house). Two judges reached the mandatory retirement age in 2007 and 2008, and a third died of a heart attack early in 2008. The court is now running with only four justices, the minimum permitted by the constitution. The PNP-controlled legislature has refused to consider any nomination to the court from governor Acevedo Vila, forcing the court to operate with three vacancies until these can be filled by the new administration after the November 2008 election.

  The legislature

  Congressmen to the House of Representatives (the lower house) and the Senate (upper house) are elected by direct popular vote every four years on the same date as the US presidential election. Puerto Ricans are US citizens, but do not have the right to vote in US presidential and congressional elections. There is a Puerto Rican resident commissioner in Washington, who is allowed to participate in congressional deliberations but cannot vote on bills or any other legislative matters. This post is currently held by Luis Fortuno, making the current Puerto Rican administration the first under which the resident commissioner has not been a member of the same party as the governor.

  Media services

  Puerto Rico's media is free and fair. The two main daily newspapers are El Nuevo Dia and El Vocero de Puerto Rico, although there are several others with more limited circulation, including Primera Hora and The San Juan Star, the only remaining English-language paper on the island. Major US newspapers are also available. Radio and television stations are regulated by the US Federal Communications Commission and are broadly similar to those in the US. Cable TV broadcasts mostly US channels and two channels from Spain.

  September 08, 2008

• Structure

  Puerto Rico: Political structure

  Official name

  Commonwealth of Puerto Rico

  Form of government

  US-style representative system

  Head of state

  Elected governor, currently Luis Fortuño (PNP), who took office on January 2nd 2008 for a four-year term; the next election will take place on November 6th 2012

  The executive

  A governor is elected every four years, and appoints departmental secretaries to administer executive power with the approval of the Legislative Assembly

  National legislature

  Bicameral Legislative Assembly; the Senate (the upper house) normally has 27 members, two for each of the eight districts, and 11 from the Commonwealth as a whole; an additional member from the opposition party is added if the ruling party has an overwhelming majority; the House of Representatives (the lower house) has 51 members, one for each of the 40 districts, and 11 from the Commonwealth as a whole. Next elections for both the upper and lower houses: November 6th 2012

  Legal system

  US-style court system, but based on the Napoleonic Code and operating within the Commonwealth; the island also functions as a US district, with justices appointed by the US president

  National elections

  November 4th 2008; the next general election is scheduled for November 6th 2012

  National government

  The Partido Nuevo Progresista (PNP) holds 22 of 27 seats in the upper house and 37 of 51 seats in the lower house. The Partido Popular Democrático (PPD) holds 14 seats in the lower house and five seats in the upper house

  Main political organisations

  Government: Partido Nuevo Progresista (PNP)

  Opposition: Partido Popular Democrático (PPD)

  Extra-parliamentary opposition: Partido Independentista Puertorriqueño (PIP); Movimiento Independentista Nacional Hostosiano (MINH); Partido Puertorriqueños por Puerto Rico (PPR)

  Governor: Luis Fortuño

  Secretary of state: Kenneth McKlintock

  Secretaries of state

  Agriculture: Javier Rivera Aquino

  Consumer affairs: Luis Gerardo Rivera

  Economic development & commerce: José R. Pérez Riera

  Education: Edward Moreno

  Health: Lorenzo González Feliciano

  Housing: Yesef Cordero

  Labour & human resources: Miguel Romero

  Natural resources: Daniel Galán

  Planning board: Rubén Flores Marzán

  Treasury: Jesús Méndez Rodríguez

  Resident commissioner (representative in US Congress)

  Pedro Pierluisi

  October 08, 2012

Economy:

• Background

  Puerto Rico: Education

  Puerto Ricans receive free education to secondary level and school enrolment is virtually universal among the population of relevant age. However, dropout rates are high among the urban poor. According to the last census in 2000, 60% of the population had completed high school or some form of higher education. The Department of Education runs an island-wide public school system with 37,000 teachers—around one for every 18 students—but there are also a large number of private schools, employing a total of around 8,000 teachers. Tertiary education and professional training are subject to charges, but there are a variety of scholarships and financial assistance arrangements that make higher education accessible to the general population. According to the 2000 census, 20.9% of Puerto Ricans had attended college or graduate school, and 18.3% had college or professional degrees. The University of Puerto Rico—organised along the same lines as state universities in the US—is the major institution of higher education, but there are also a dozen private universities. The adult literacy rate is around 90%.

  September 08, 2008

• Structure

  Puerto Rico: Economic structure

  Economic structure: Annual indicators

  	2008a	2009a	2010a	2011b	2012b
  GNP at market prices (US$ m)c	61,665.2	62,598.1	63,058.1b	64,106.3	65,453.5
  Real GNP growth (%)c	-2.9	-3.7	-3.4b	-1.5	0.7
  Population (m)	3.8	3.7	3.7	3.7	3.7
  Exports of goods fob (US$ m)c	63,954	60,807	61,657	64,876	58,914
  Imports of goods fob (US$ m)c	-44,928	-40,651	-40,810	-44,672	-46,575
  Current-account balance (US$ m)c	-1,712.4	1,117.5	3,389.8	3,233.7d	–
  Total external debt (US$ bn)	46.7	53.0	56.8	–	–
  Debt-service ratio, paid (%)	8.4	8.4b	–	–	–
  a Actual. b Economist Intelligence Unit estimates. c Fiscal years (July-June). d Economist Intelligence Unit forecasts.

  Download the numbers in Excel

  Origins of gross domestic product 2009	% of total	Components of gross domestic product 2009	% of total
  Manufacturing	45.5	Private consumption	88.5
  Construction	1.8	Government consumption	17.7
  Transport & other public utilities	6.3	Gross domestic investment	16.3
  Commerce	8.9	Exports of goods & services	118.5
  Others	36.8	Imports of goods & services	-141.1
  Principal exports fob 2012	US$ m	Principal imports cif 2012	US$ m
  Chemical products	44,488	Chemical products	20,574
  Processed foodstuffs	3,670	Petroleum & coal products	6,603
  Computers & electronics	1,575	Processed foodstuffs	3,385
  Machinery	729	Computers & electronics	2,415
  Petroleum & coal products	68	Transport equipment	2,272
  Main destinations of exports 2008	% of total	Main origins of imports 2008	% of total
  US	76.3	US	52.7
  Germany	5.2	Ireland	20.7
  Belgium & the Netherlands	4.2	Nigeria	4.6

  Download the numbers in Excel

  Download text file (csv format)

  October 08, 2012

• Outlook

  Puerto Rico: Country outlook

  Puerto Rico: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  OVERVIEW: Given recent setbacks to Puerto Rico's ruling Partido Nuevo Progresista (PNP) the Economist Intelligence Unit expects Alejandro García Padilla, of the opposition Partido Popular Democrático (PPD), to narrowly win the governorship in the November 6th election. The next administration will confront a daunting array of problems, including a weak economic recovery, high unemployment, corruption and high rates of crime. After five years of recession, we estimate that the economy returned to growth in fiscal year 2012 (July-June), but expansion will be tepid in the 2013-14 outlook period. Efforts have been made to put the public finances on a more sustainable footing, but the fiscal outlook remains precarious, and a shortfall in the public pensions system is a particular concern. Inflation will remain mild, restrained by weak domestic demand. We expect average inflation of 1.2% in 2012, with slightly higher rates in 2013 and 2014, driven by still-high energy costs and a pick-up in domestic demand growth. After shrinking sharply in fiscal year 2012, Puerto Rico's traditionally large trade surplus will grow moderately in 2013-14, to an average of US$13.4bn, as external demand picks up.

  DOMESTIC POLITICS: The governor, Luis Fortuño, of the pro-statehood PNP, faces a difficult challenge in the November 6th gubernatorial election. Ongoing problems, including a weak recovery after five years of recession, high rates of unemployment, government corruption, pervasive crime and harsh austerity measures designed to rein in a large fiscal deficit have combined to erode his popularity and political clout. This was evident in the defeat, in a referendum held on August 19th, of two constitutional amendments he proposed: one to limit the right of persons accused of serious crimes to be freed on bail pending trial, the other to reduce the number of lawmakers in the legislature. This setback underscored a loss of credibility for Mr Fortuño and suggested major obstacles for his re-election bid. Recent downgrades by credit-rating agencies to various government bonds are another blow to the governor. He has staked much of his campaign on the assertion that he has fixed the island's economic problems, but these persist, and the downgrades reflect this. Additional woes include recent scandals over alleged civil rights abuses carried out by the police force (which resulted in a lawsuit against the government in June), and the report, issued in September by the US Attorney-General's office, that Puerto Rico led all US judicial districts in the number of public corruption convictions (130) in 2011; it had been in second place since 2002. The next elections for governor, the Senate and the House of Representatives (the upper and lower houses of the local legislature) will take place on November 6th 2012. An August poll showed Mr Fortuño, who is seeking re-election, behind Mr Padilla-although a less reliable poll released in September showed the incumbent mildly ahead. The PPD is capitalising on public dissatisfaction with the weak state of the economy, the administration's tight fiscal policies and its limited success in addressing a growing crime wave. Although the race will be very tight and there could be upsets in the final weeks, the defeat of a government-sponsored referendum on constitutional reforms in August supports our baseline forecast that the PPD candidate, although lacking in charisma and experience, will win the election. However, he will face a hostile legislature, as the PNP is likely to retain control of that body.

  INTERNATIONAL RELATIONS: Relations with the US will be dominated by the island's political status issue, economic ties and, increasingly, by the US government's interest in combating drug-trafficking activities. A two-stage plebiscite on Puerto Rico's status will be held on the same day as the general election in November. In a first ballot, voters will state if they are in favour of maintaining the present territorial (commonwealth) status. In a second ballot, those who reject the territorial status will then vote on a choice between full US statehood, independence or two versions of commonwealth. Even if the statehood option won, the PNP's efforts would not gain much traction, as formal proposals for full US statehood would meet obstacles in the US Congress. The US president, Barack Obama, has stated in the past that unless there is a strong majority in favour of a change in status, Congress will be unlikely to act on the matter in the near term. Regarding economic issues, bilateral relations with the US will focus on corporate taxes, particularly after the recent expiry of key tax breaks, and ongoing lobbying from the Puerto Rican government and the private sector for the enactment of US legislation to provide new tax benefits for US companies on the island. Without such incentives, the authorities fear more companies will halt plans to invest or expand on the island, as several manufacturing firms, including pharmaceutical companies, have already done. This trend is likely to continue in the short term, dampening Puerto Rico's nascent economic recovery.

  POLICY TRENDS: Regardless of which party wins the November election, the main challenge for policymakers in 2013-14 will be to improve on a nascent turnaround in the ailing economy, which endured recession from 2007 to 2011. During his time in office, Mr Fortuño has been relatively successful in implementing adjustment measures to correct fiscal imbalances inherited from previous administrations, while using around US$6bn in stimulus money from the Obama administration to support the recovery. However, this money ran out in 2011, forcing the administration to re-orient policy towards tax cuts and stimulus spending funded by a new excise tax on foreign corporations. Going forward, the government will also promote further public-private partnerships (PPPs), such as the partial privatisation of the San Juan International Airport, the completion of a 5-km section of a major highway and the construction of at least one new prison. In a bid to diversify the economy, the government has enacted a law that provides tax incentives designed to promote Puerto Rico as a hub for export services. Labour reform legislation supported by the private sector is also on Mr Fortuño's policy agenda, but has been put on the back burner until after the election. Despite the Fortuño administration's efforts to put the public finances on a sustainable footing (following years of fiscal mismanagement), the fiscal outlook remains extremely fragile, as underlined by recent downgrades by international credit ratings agencies. Moody's downgraded the government's general obligation bonds in August 2011 to Baa1 (and changed their outlook from stable to negative), and the agency in July 2012 downgraded its rating on US$16bn of so-called Cofina bonds, the government's best credit quality bonds (to Aa3 for senior bonds, to A3 for subordinate bonds). Although these are still investment grade ratings, Moody's based the latest revision on the weak domestic economy and its expectation of poor growth going forward. In June Standard & Poor's revised the outlook on the general obligation bonds from stable to negative, citing a challenging economic and fiscal environment and concern over a large actuarial deficit in the public pension system. Needed funding of the pensions system will be held back by spending constraints. Progress largely will depend on the island's economy recovery and the associated increase in tax revenue, as well as revenue from the excise tax on large manufacturing introduced in 2011. The latest rating downgrades are not expected to have significant immediate effects on the cost of borrowing for the commonwealth, but they add to market pressures that have caused a creeping rise in the yields of the island's bonds over the past few years. Puerto Rico's government boasts a solid debt-service record, and the municipal bond market continues to show a strong appetite for the island's debt issues.

  ECONOMIC GROWTH: After a five-year recession, we estimate that the economy returned to growth in 2012, expanding by around 0.7%. GNP is used in preference to GDP as a measure of growth in the local economy, as it nets out the large outflow of profits from US firms operating in Puerto Rico. This estimate is supported by the Economic Activity Index produced by the Government Development Bank (the Central Bank), which in June remained out of negative territory for the seventh consecutive month. However, stronger growth was precluded by weak domestic demand, an uneven recovery in the US (the destination of more than 70% of Puerto Rico's exports) and recession in the euro zone. Growth is expected to pick up modestly in the next two years (we expect GNP to expand by 1.2% in fiscal year 2013 and 2% in 2014), supported by an improvement in domestic credit conditions and a gradual recovery in tourism and construction activity. However, growth will be held back by high unemployment, which, at 14.8% (13.7% in seasonally adjusted terms) in July 2012, is at one of the highest levels in the Latin American and Caribbean region. Although international oil prices in 2013-14 will stay below their high of 2011, fuel will remain costly, and this will act as another dampener on growth. We expect private consumption to pick up gradually in 2013-14, in line with further improvements in credit conditions, but growth will average just 1.8%. The government's success in advancing PPPs will have only a small effect on growth, as these projects will take time to implement. Export and import levels will follow US growth patterns, which are showing some, albeit limited, signs of improvement. On the supply side, tourism began to pick up in fiscal year 2012, with non-resident hotel registrations up 18.9% year on year in June and the hotel occupancy rate up 6.6 percentage points (to 79.4%) compared with a year earlier. However, weaknesses in the US economy will restrain growth in tourism. Retail sales rose by a modest 2.5% year on year in 2012, and should pick up modestly going forward. Auto sales were particularly strong in the second half of the year (January to June), rising 12.8% year on year. Construction continues to suffer the consequences of a contraction that began in 2007, although growth in cement sales (up 7.3% year on year in fiscal year 2012) indicates that it has begun to recover and will grow moderately in the medium term.

  EXTERNAL ACCOUNT: Preliminary official data show a notable shrinkage in 2012 of Puerto Rico's traditionally large trade surplus (to US$12.3bn from US$20.2bn a year earlier), with exports falling by 9.2% and imports rising by 4.3%. The export drop was the result of a 7.5% decline (to US$58bn) in manufactured exports-which account for nearly all exports from Puerto Rico-particularly chemicals and pharmaceutical products (mainstays of the local export sector). Imports of petroleum and coal products rose by 15.1% in the period, to US$6.6bn. Although export growth is forecast to resume in 2013-14, it will remain sluggish until the US recovery gains momentum, and will also be hindered by problems in the manufacturing sector, the 4% tax on exports and the expiry of key patents in the pharmaceuticals sector. High import costs (particularly for oil), a gradual pick-up in domestic demand and the slow recovery of import-dependent sectors (such as tourism and retail) will keep import spending high. This means that the trade surpluses in 2013-14 will be smaller than those that prevailed in the years prior to 2012 (in 2007-11, the surplus averaged US$19bn). The large services deficit will be partly offset by the positive transfers balance, which will benefit from continued transfers from the US federal government. Remittances inflows are insignificant, averaging less than US$500m per year.

  October 11, 2012

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Country Briefing

Land area

8,876 sq km

Population

3.72m (2010; US Census Bureau)

Main towns

Population in '000, 2010 estimates:

 San Juan (capital): 395

 Bayamón: 208

 Carolina: 178

 Ponce: 166

 Caguas: 143

 Guaynabo: 97

 Arecibo: 96

 Mayagüez: 89

Climate

Sub-tropical

Weather in San Juan (altitude 14 metres)

Hottest months, September and October, 24-30°C (average monthly minimum and maximum); coldest month, January, 21-27°C; driest month, February, 69 mm average rainfall; wettest month, July, 160 mm average rainfall. Hurricane season: June 1st to November 30th

Languages

Spanish and English

Measures

UK (imperial) and US systems

Currency

US dollar

Time

4 hours behind GMT

Public holidays

January 1st, 6th, 12th and 19th; February 16th; March 22nd; Good Friday; April 20th; May 25th; July 3rd and 27th; September 7th; October 12th; November 11th, 19th and 26th; December 25th

July 23, 2012