Puerto Rico Wooing Wealthy Investors
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 are 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 business executives, the majority from the U.S., are attending the summit, organized in part by Paulson's company and Puerto Rico's Department of Economic Development & Commerce. The summit is the first of its kind and seeks to highlight reasons why Puerto Rico would be a good place for investors, including a law that allows new residents to avoid taxes on capital gains, the main revenue source for many high-end investors.
The summit comes as Puerto Rico tries to jumpstart its economy, whittle down $70 billion in public debt and lower its 14.7 percent unemployment rate, the highest compared with any U.S. state. The island also saw its credit recently downgraded to junk status, but the government in March issued a record $3.5 billion in general obligation bonds to help boost liquidity and refinance debt, among other things.
"We proved that Puerto Rico is not Detroit, it's not Greece," Gov. Alejandro Garcia Padilla said at the summit'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 still waiting for Garcia to unveil the first balanced budget in more than two decades on Tuesday. Garcia has pledged to eliminate at least $820 million in deficit, but it is unclear how exactly he plans to do that.
Garcia has only said he will erase the deficit without resorting to layoffs, and that he will focus on attracting more high-end 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 is investing $450 million to renovate a marina complex in the southern city of Fajardo, said he moved to Puerto Rico from Connecticut about a year ago. 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.
The government has pushed to diversify the U.S. territory's economy in recent years 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 company Honeywell said this week that it would invest $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 said. "Problems that took two decades to create cannot be solved in months."
Carrion said the government needs to focus on two worrying statistics: the loss of population and a low labor participation rate.
More than 450,000 people have left the island in the past decade, and the labor force participation rate is 41 percent, compared to 63 percent in the U.S.
"Those are the needles we've got to move," he said. "We need to get growth back in the equation."