It's Friday, February 27th, the second day of the Puerto Rico Investment Summit, which began on the 26th, with the purpose of presenting the benefits of Laws 20 and 22 of 2012 to foreign investors. We find ourselves at the Condado Vanderbilt in San Juan, owned by multi-millionaire John Paulson and we are writing with a black ballpoint pen inscribed with the hotel's name in gold on a notepad with the logo of Merrill Lynch Bank of America Corporation. On the first day of the Summit, Fahad Ghaffar, executive director of Paulson & Co. stated that his company is very interested in constructing buildings in the spaces that are presently parking areas facing the ocean on Ashford Avenue.
Admission to the Summit was $1,500 for foreigners, $2,500 for Puerto Ricans, which reflects the nature of who could be attending in the room. On both days, attendance was full to capacity with approximately 400 attendees.
The showcase was designed to impress. Puerto Rico is up for sale to foreign millionaires. Adworks company, sponsored by the Department of Economic Development and Commerce and UBS, fashioned a display with all the offers of the season: exemption of all taxes and benefits of Laws 20 and 22; exalted the natural charms of the Caribbean and the warmth of its people; that it is a country in full economic recovery; divine weather; offering health services equal to those of the mainland USA; and professional services available at less than half the cost of the United States... that was what was being pushed by the presenters on both days.
The Opportunities for Public Private Partnerships panel was moderated by Grace Santana, Director of the Public Private Partnerships Authority and of the Infrastructure Financing Administration. Among the participants was Manuel Rodríguez, representing Peitrantoni Méndez & Álvarez and DJ Gribbin, director of the Macquarie Group. According to Rodríguez, the Luis Muñoz Marín Airport transaction made with Aerostar highlighted various aspects of the government of Puerto Rico and was, at the same time, a premonition of what will happen in the future:
“The government of Puerto Rico is willing to work with its partners, it closed on the transaction, a very complicated transaction, that had been negotiated for basically two and a half years, and not withstanding all of the noise surrounding the transaction, Puerto Rico actually was conscious that this was his calling card in front of the investor community. It needed to make that statement, that we are open for investment and the government was basically going to keep on promoting the investment environment for transactions like this in Puerto Rico going into the future.”
Rodríguez, who acted as an advisor in the negotiation, believes that the airport transaction with a private company was historic, fast, “pretty fast,” especially within the context of the political elections and change of administration, and assured the audience that the airport suffered inadequate administration for more than 40 years.
Benefits of lack of governmental efficiency
That lack of governmental efficiency resulted in a highly viable business deal for Aerostar and could also be so for the majority of the attendees in the room who hardly spoke Spanish: they are millionaires interested in the legislation and tax exemptions that could benefit them; companies that offer services to this sector, such as soliciting and obtaining permits, banking, real estate, legal advisors, investment management, schools, health service providers, technology firms and public officials.
No details were given of any updates from the airport’s P3, other than renovation of bathrooms, according to Rodríguez.
After exalting the virtues of the P3, a question and answer session followed with seven “financial experts,” all men, middle aged, speaking in front a blue and green background. Actress Cordelia González served as hostess and provided humorous touches to an event that at times seemed surreal.
Lunch was served. The area was packed with tables where animated conversations by men in suits were heard. The only one not wearing a suit and tie was the Secretary of the Department of Economic Development and Commerce (DDEC), Alberto Bacó-Bagué, with his hair combed back, wearing a brown sports jacket with elbow patches, blue jeans and small, oval wire eyeglasses. He moved from table to table resembling a pompous landowner proud to attract these foreign millionaires with the incentives and benefits the island offers.
“Last year, hardly anybody in Puerto Rico knew what Acts 20/22 were. Now, my friends' children are getting jobs with companies and people under Acts 20/22 decrees,” Bacó-Bagué said to the weekly Caribbean Business' “Road to Recovery” edition.
Law 20 of 2012 “Exalts the exporting of services,” promotes Puerto Rico as an international service center through the reduction of taxes on earnings and property tax exemptions as incentives toward the access of all types of professional services. Law 22, “attracts the relocation of individual investors to Puerto Rico;” it provides tax exemptions on income and production made by individuals that have become residents of Puerto Rico. Other related laws presented to those millionaires in attendance were Law 273, which established the International Financial Center; Law 399, which created the International Insurance Center; Law 27, which provides incentives to the film industry, and the EB5 Program, which provides investment visas.
All questions directed at the panel at the convention were sent via text messages. What about fiscal economic reform?, the moderator read. There was silence in the ballroom. One of the “experts” jumped and responded, “We shall see. It’s a little too early to tell”. But Juan Guillermo-Herrans, from Meryl Lynch, was quick to add, “That depends on which economic sector you belong to. If you are in a very low socioeconomic sector, it’s going to hurt you more. If you have a lot of assets and income, the reality is that living expenses are a small percentage of your annual income or your wealth, so, taxing a small percentage of your wealth its not going to make you a lot poorer.”
Following the luncheon, Margaret Pena-Juvelier, made her presentation on Puerto Rico's real estate market, a market with a particular problem that a colleague in the industry pointed out as a whisper: there aren't enough properties valued at more than $2.5 million to meet the demands of the new millionaires. However, while the president of Sotheby's in Puerto Rico spoke, images of luxurious mansions were projected on screens on both sides of the stage. These images reflected the “excellent taste” of Puerto Ricans for architecture. Pena-Juvalier, mentioned in a humorous anecdote, that she remembered her arrival on the island two years earlier and that when she saw a McDonalds, she felt right at home, and that her husband felt excited, when he saw there was also a Krispy Kreme. She added that there are no security issues in Puerto Rico.
Carlos Ubiñas, UBS CEO in Puerto Rico, commented on the first day of the summit that: “You walk around PR and you don’t get a sense that there is high unemployment.” That depends on where you go, of course.
Maybe the Department of Consumer Affairs should have been there to monitor fraudulent ads.
When addressing public and educational resources and services, the government just gave up. They did not bring representatives from a model or specialized public school program or one of those schools using the Montessori model, to speak of the aspirations and opportunities that these offer their children. Instead, several private schools were present: Tasis Dorado, Robinson School, Baldwin School, Parkville School and St. John’s School, which spoke of technology in the classrooms, family integration into the school program, emphasis on science and math, and the number of students admitted to universities and colleges on the mainland. “It was like the government acknowledged its inability to provide quality services,” a fellow reporter commented.
At the closing of the event, Janice Petrovich, a philanthropic consultant, revealed the uncomfortable reality, which the investors probably had no interest in hearing. She came to speak of poverty, of inequality, of how to give back to Puerto Rico, instead of only taking away a piece of the pie. At that moment, only 20 or so attendees were in the room.
“I am here to ask you to switch ears. For last few days we have heard a lot about how you can benefit from moving to the island and of all the tax incentives and all of the other sorts of services and good weather that you can benefit from. The focuses of my remarks are social investments, that is, how you can give back… We have heard about all the beautiful things Puerto Rico has to offer, such as, the nice beaches, the well-educated people, excellent schools and good restaurants, CVS and the United States Postal Service. We’ve heard less of the economic challenges faced by Puerto Ricans… The poverty levels here are higher than the state of Mississippi, which is the poorest state of the US. In fact, 45% of Puerto Ricans live below the US poverty line. In addition, we have very high levels of social inequality.”
Upon leaving the Summit, we followed the same path as the others who had attended the selling of Puerto Rico as the Marvel of the Caribbean. Along with the landscape on Ashford Avenue en route to San Juan, Puerto Rican architecture stands out as in other parts of the island, there is deterioration. Here, there are several abandoned structures near the Miami Building, revealing a scene closer to a war torn area than to an idyllic tropical island, like the one the government sold, between Thursday and Friday, to foreign millionaire investors.
The DEDC has already visited Dallas, Texas, New York, and Miami, Florida and has made similar presentations.
“As part of these efforts, presentations have been made about the incentive laws to important law firms, such as, Baker & McKenzie, Carlton Fields Jorden Burt, Bilzin Sumberg, Goldman Felcoski & Stone and Comiter Singer Baseman & Braun, among others. The main objective of these meetings is to brief the law firms on how their clients can benefit from the incentives, depending on what type of business or service they offer,” CyberNews reported upon interviewing Bacó-Bagué.
Translated by Michelle Kantrow.