Puerto Rico Gov. Alejandro García Padilla will unveil another initiative to turn around the commonwealth's long term economic decline.
His state of the commonwealth speech Tuesday will include a series of recommendations from a growth and competitiveness task force the governor set up in early March.
It was tasked with developing ideas to deal with several key problems afflicting the island: low labor force participation, emigration of young talent, population loss, and the island's relatively large underground economy sector that evades taxes. Many of the ideas focused on improving the island's economy with the assumption that better economic performance would address some of these things.
Led by García Padilla's chief of staff Ingrid Vila Biaggi, the task force proposed 34 recommendations to the governor.
"Puerto Rico's Plan of Action for Growth and Competitiveness differs from prior academic or 'think tank' driven economic plans," said Municipal Market Advisors managing director Robert Donahue. "It incorporates key stakeholder opinions around some of PR's most pressing issues: underground economy, talent drain, aging population, and low rate of labor force participation."
The website, http://mesadeaccion.pr.gov, shows over 150 wide-ranging ideas to address the island's challenges, some unique and worthy of consideration, Donahue said.
"It's good that the governor is showing he is engaged, open to new ideas, and focused on building political consensus given the many difficult decisions (particularly introducing and adopting a balanced budget) he will need to make in coming months," he said.
One of Puerto Rico's leading economists, Vicente Feliciano said, "It is critical that Puerto Rico focuses on competitiveness and growth. Compared to Ireland, Puerto Rico's debt is much smaller as a percentage of GNP. However, Ireland's debt trades at less than 4% whereas Puerto Rico debt trades at close to 9%. The main difference is the economic performance."
Feliciano is president of Advantage Business Consulting, an economic consulting firm based in Puerto Rico.
"Out of all initiatives that can have an impact on competitiveness and growth, the most important one is energy reform," Feliciano said. "While many of the proposals of the task force are worth pursuing, the immediate efforts should be directed to the enactment of an energy reform bill that introduces an external agent to monitor and regulate the Puerto Rico Electric Power Authority."
Puerto Rico's Senate and House of Representatives are currently working on a bill to reform the island's electrical system and ultimately reduce its relatively high electrical rates.
The task force was formed and operated differently from think-tank driven task forces. Among the nine executive committee members, just two, economist Mario Marazzi and academic José Jaime Rivera, came from a more academic background. Two were government officials: Vila Biaggi and Puerto Rico's chief of public affairs, Jorge Colberg Toro.
Working alongside were others more involved in the actual economy: businessman Carlos L-pez-Lay, union leader Robert Pagán, journalist Linda Hernandez, tax expert Carlos Serrano, and community leader María del Lourdes Lara.
There were eight additional members of the group drawn from a wide range of backgrounds.
The group encouraged ordinary citizens to propose ideas. It set up a website and received 375 proposals for change. Of these 156 were seen as directly relevant to the four group goals.
The task force stopped accepting ideas on April 2 and in mid-April it submitted its report with 34 recommendations to the governor.
It identified several recommendations as most likely to yield short and medium-term benefits.
It said the government should promote agricultural crops for local consumption and identify others that might be produced with high value-added for export. Renewable energy should be promoted both as an innovative industry and because it can aid local manufacturing, the task force recommended.
Creative and innovative industries should be encouraged as potential sources of exports, it said. The task force said that there was significant room for growth in tourism and in the economy serving visitors.
The task force called for several changes that would require the action of Congress.
It said Puerto Rico should seek exemption from the Jones Act. The act requires all maritime shipping between U.S. ports be done using U.S.-flag ships, constructed in the United States, owned by United States citizens, and staffed by United States citizens. It said Puerto Rico should also seek flexibility in federal financial aid programs in promoting employment and productivity in the country.
The task force is seeking several steps to promote indigenous businesses. It suggested that multinational retail chains located on the island be required to invest a certain percentage of their profits in Puerto Rico. This investment could be in the form of hiring full-time employees, providing benefits to the employees, and hiring local contractors.
The group called for the government to prioritize helping small and medium businesses. Tax exemptions for multinational stores should be strictly limited, it recommended, saying that in general, the government should reexamine how it allocates subsidies and exemptions for companies.
The task force concluded that economic growth is key to addressing its four topics of concern. "The 34 recommendations presented to the governor by the action task force address directly the four issues for which the task force was initially created," Vila Biaggi wrote in an email.
"The proposals establish economic strategies and concrete initiatives that: generate opportunities for young recent graduates, professionals and entrepreneurs; create the necessary conditions to stimulate productivity and reduce dependency, which will have the effect of increasing the labor participation rate and reduce the underground economy; provide tools to combat tax evasion and formalize activities that are part of the underground economy; propose mechanisms for dealing with the growing population of older adults as productive resources, while representing a niche for creating products and services," Vila Biaggi said.
Gov. García Padilla will select some of the proposals to highlight as part of his state of the commonwealth speech to be delivered Tuesday evening. He will also present his proposed budget for fiscal year 2014-2015 in the speech. Some of the proposals would require the two houses of Puerto Rico's legislature to pass new laws. The governor can lobby the U.S. Congress without the local legislature's approval.
