Can Spain solve Puerto Rico’s financial crisis?

Puerto Rico is courting Spain in what could be the Caribbean island’s first decisive step towards financial recovery as it has experienced almost a decade…
Can Spain solve Puerto Rico’s financial crisis?

In this file photo, tourists walk through a parking lot in front of a pier where a cruise ship is docked in Old San Juan. Trade groups say the flourishing cruise ship industry injects about $2 billion a year into the economies of the Caribbean. Puerto Rico is looking to boos its industry, while tourism remains a short-term fix to its economic crisis. (AP Photo/Ricardo Arduengo)

Puerto Rico is courting Spain in what could be the Caribbean island’s first decisive step towards financial recovery as it has experienced almost a decade of financial crisis. The government in San Juan aims to become a sort of “investment bridge” between Spain and the U.S. by capitalizing on the island’s history of pharmaceutical production, as well as other industries such as banking and computer technology.

SEE ALSO: Despite the odds, Puerto Rico can still prosper

This is a bold move by the administration of Governor Alejandro Padilla. If successful, it could stop the “brain drain” of young educated Puerto Ricans who have chosen to migrate to the U.S., Spain or Latin America in search of better livelihood.

Puerto Rico Courts Madrid

Governor Padilla has intended to increase ties with Madrid over the past year. This was best exemplified by his trip to Spain on June 2013 with an entourage that included Alberto Baco, Secretary of Economic Development and Commerce, as well as Antonio Medina, Director of the Compañia de Fomento Industrial (PRIDCO).

The goal was to get the attention of Spanish and other European industries to the island’s pharmaceutical industry.

Puerto Rico historically has had a strong industry of biosciences. It is estimated that 18% of pharmaceutical products in the U.S. are manufactured in Puerto Rico, such as Lipitor, Norvasc and Zocor.

A group of Spanish industrialists returned the favor and visited the Caribbean island this past February as part of a workshop ambitiously entitled: “Puerto Rico: Gateway to the United States Biotechnology Market.” The delegation was made up of representatives of Spanish companies such as CRB Inverbio, Health in Code and MGM Integrated Solutions.

The aforementioned Medina, director of PRIDCO, highlighted that “Puerto Rico has a history of over 50 years in the pharmaceutical industry, which has evolved and expanded into other industries” such as biotechnology.

An April 6 report by the Spanish news agency EFE summarizes Padilla’s new strategy: internationalize the island’s economy and create a platform for foreign firms that would like to export their services to the U.S. and for local companies who wish to break into the European market. (In other words, San Juan would become the proverbial middle man).

So far, it seems that San Juan has had limited success at bringing investment from Madrid.

The aforementioned EFE article explains how trade between Puerto Rico and Spain is “sparse” and the island exported $875 million USD worth of Spanish goods in 2012.

Plan B for Puerto Rico: Tourism

While the Padilla government aims to increase investment opportunities with Spain, he may have to rely on the well-tested tourism sector as a Plan B for short-term income.

This upcoming May a new Air Europa route will start between San Juan and Madrid. This could bring a significant increase of Spanish tourists, and their wallets, to the island for the summer 2014 tourist season. Ingrid Rivera, Puerto Rico’s Minister of Tourism, believes that this air route could bring up to 28 million euros to the island.

Moreover, Puerto Rico participated in the late January 2014 International Tourism Fair, which was held Madrid. Additionally, Puerto Rico will earmark as much as two million USD for a marketing campaign to attract more European tourists to the island.

There is also the hope that Iberia could once again restore flights to Puerto Rico. Due to financial problems the airline stopped flights to San Juan in early 2013.

Short Term Solutions?

Puerto Rico’s financial credibility has been hurt due to its $70 billion USD debt. Hence, analysts and scholars continuously compare the island to European nations in financial trouble.

In fact, the renowned Dr. Howard Wiarda from the University of Georgia wrote a commentary in which he argues that “uncertainty over the status issue [with the U.S.] makes it more difficult for Puerto Rico to renegotiate its large debts, while its inability to pay reinforces the notion […] that the island […] cannot govern themselves.” (Wiarda, “Puerto Rico: A Caribbean Greece?” March 2014).

Protest of government pensions in Puerto rRico.

People protest outside the government pension headquarters in San Juan, Puerto Rico, Wednesday, Jan. 30, 2013. Puerto Rico is confronting what economists and financial analysts say is a ticking fiscal time bomb. (AP Photo/Ricardo Arduengo)

Finally, this past January 28, the Center for International Security Studies hosted a conference with Dr. Jose Villamil, a Puerto Rican economist and Chairman & CEO of Estudios Tecnicos, a financial consulting firm in Puerto Rico.

During the Question & Answer section, I asked Villamil how the Puerto Rican government could stop the aforementioned brain drain of young educated individuals, who make up the cornerstone of any country’s workforce.

Villamil acknowledged that it is a major problem. One of his suggestions for a short term solution is investment in construction. He clarified that he did not mean ongoing large projects in the island such as a proposed train and the extension of a major expressway.

Villamil explained to the audience that he meant small infrastructure projects that can be built very quickly, particularly on the Western part of the island which is more undeveloped.

Nevertheless, he stressed that construction will not solve the island’s long term problems; this is just one short term solution.

Initiatives such as an alliance with Spain over pharmaceuticals, increasing tourism and short-term construction projects demonstrate how Puerto Rico has several options regarding how to jumpstart its economy. Hopefully one of them will work.

SEE ALSO: US to aid Puerto Rico during economic distress