SAN JUAN, Puerto Rico – Puerto Rico hopes to persuade wealthy investors to bet on the U.S. territory at a two-day conference aimed at attracting new money amid the island’s struggles to recover from a nearly eight-year recession.
Among the featured speakers Thursday were hedge fund billionaire John Paulson, whose New York-based firm Paulson & Co. is investing $260 million this year in two upscale, beachfront hotels in the capital of San Juan.
Some 200 executives, the majority from the U.S., attended the meeting, organized in part by Paulson’s company and Puerto Rico’s Department of Economic Development & Commerce. The goal is to highlight the island’s attractions for investment, including a law allowing new residents to avoid taxes on capital gains, the main revenue source for many high-end investors.
Paulson said he believes Puerto Rico’s economy is turning around and will reach its peak in three to four years.
“We are investing here because we feel we are getting involved in the ground floor,” he said. “I think tomorrow the island will develop into the Singapore of the Caribbean.”
The conference comes as Puerto Rico tries to jumpstart its economy, whittle down $70 billion in public debt and lower the 14.7 per cent unemployment rate, higher than any U.S. state. The island’s credit rating was recently downgraded to junk status, but the government in March sold a record $3.5 billion in general obligation bonds.
“We proved that Puerto Rico is not Detroit, it’s not Greece,” Gov. Alejandro Garcia Padilla said at the meeting’s opening. “We proved that Puerto Rico is not heading to a default on its obligation, but to a fiscal and economic recovery.”
However, U.S. investors and bondholders are waiting for Garcia to unveil on Tuesday what he promises will be the U.S. territory’s first balanced budget in more than two decades. Garcia has pledged to eliminate an $820 million deficit, but it is unclear how he plans to do that.
Garcia has said only that he will erase the deficit without resorting to layoffs, and that he will focus on attracting more big investors to the island of 3.67 million people.
“This is not only about keeping government spending in line, but about generating wealth in Puerto Rico, job investment and trade,” he said. “It’s this economic activity that at the end of the day will make a difference.”
Nicholas Prouty, president of Putnam Bridge Funding, a company that invested $450 million to renovate a marina complex in the eastern city of Fajardo, said he recently moved to Puerto Rico from Connecticut. The announcement surprised many of his U.S.-based friends, he said.
“People move from Puerto Rico, they don’t move to Puerto Rico,” Prouty recalled one New York hostess telling him.
Prouty and other speakers touted the island’s tax breaks, its private schools and its bilingual and skilled workforce, while brochures given to attendees highlighted cultural events and million-dollar homes with ocean and golf course views.
At least 348 people applied in 2012 and 2013 to receive tax exemptions under two laws approved by former Gov. Luis Fortuno in a bid to attract investors and generate more business on the island. At least 173 of those applied under a law that requires them to become residents of Puerto Rico.
The government in recent years has pushed to diversify the economy and strengthen its industrial base. German company Lufthansa Technik announced this month that it would invest $20 million and build a facility for aviation maintenance, repair and overhaul, while Arizona-based Honeywell Aerospace said this week it would spend $24 million to expand its business on the island.
Richard Carrion, chairman and CEO of Banco Popular Inc., who was involved in the Lufthansa deal, acknowledged that concerns about Puerto Rico’s economy remain.
“Fiscal conditions remain delicate,” he told reporters at the conference. “Problems that took two decades to create cannot be solved in months.”
Carrion said the government needs to focus on the loss of population and a low labour participation rate. More than 450,000 people have left the island in the past decade, while just 41 per cent of working-age Puerto Ricans are in the labour force, compared to 63 per cent in the U.S.
“Those are the needles we’ve got to move,” he said. “We need to get growth back in the equation.”