Paulson is betting that millionaires will come in droves. In his presentation, in which he forecast that Puerto Rico would become “the Singapore of the Caribbean,” he said he plans to develop residential and office properties to go beyond the current high-end offerings.
The government gives a tax break for businesses that move to Puerto Rico and provide services outside the country, perfect for a hedge fund with clients in New York and London. These firms pay only a 4 percent corporate tax, compared with 35 percent on the mainland. About 270 companies have applied for this incentive, according to officials.
Governor Alejandro García Padilla, elected in November 2012 by a margin of 11,000 votes -- he likes to joke that he should have asked for a recount -- is promoting the laws in the hope they will help spur an economy that’s barely seen any growth since 2007. The statistics are grim. The territory of 3.7 million people has $73 billion of debt and a median income of $19,429, about half that of Mississippi, the poorest state in the union. Unemployment is 13.8 percent, compared with 6.3 percent stateside; and income inequality, as measured by the Gini index, is higher than in any of the 50 states.
Island Exodus
Puerto Ricans were given U.S. citizenship in 1917, meaning they can easily leave the island for better jobs stateside. And they have. A net 280,000 engineers, doctors and other citizens emigrated from 2005 to 2012, according to the Puerto Rico Institute of Statistics. The government is hoping the campaign to lure the rich from the mainland will bring more jobs to the island and raise GDP.
“Our plan is not just about keeping government spending in line, but it is about generating wealth in Puerto Rico -- jobs, investment and trade,” García Padilla said at the April conference. The government estimates that the two tax laws could create 90,000 jobs and add $7 billion to the economy by 2016.
One hedge-fund manager, who requested I not use his name, gave a less-than-rosy view as he drove around the narrow streets of Santurce in San Juan. He’d moved from New York a few months ago, and although he likes living in San Juan, he calls it a bombed-out version of Miami.
Worst Aspects
In many respects, he says, Puerto Rico is the worst of the mainland and the Caribbean. There are more Walmarts and Walgreens per square mile than in any other place in the U.S., according to the Puerto Rico Center for Investigative Journalism, and it has the inefficiencies of most Caribbean islands, including power outages and quirky laws. Married couples must buy property together unless they have a prenuptial agreement. He complains that it takes 20 minutes to get a Quiznos sandwich. Service is often on “island time.”
The hedge fund manager brings me to Santaella restaurant, where we join a table of 10 or so newcomers eating the island’s comida criolla and drinking cocktails and beer. No one wants to speak on the record. They aren’t much different from any group of young traders -- cracking jokes and checking out women at the bar -- except for their obsession for minimizing taxes.