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June 2011

JosĂŠ R. PĂŠrez-Riera Secretary Department of Economic Development and Commerce (DEDC) Government of Puerto Rico


Message from the Secretary

Department of Economic Development and Commerce

Click to» edit Master text styles SMNE Growth, Competitiveness, Jobs “The Strategic Model for a New Economy (SMNE) is the most comprehensive, thorough and well-thought out economic development plan Puerto Rico has had in decades. It is a coherent plan that not only establishes the vision and guiding principles that directs government action in economic development matters, but also details specific measures the Administration is taking and will continue developing to address in the short-term the economic crisis we are still facing and restore our competitiveness in the mid- and long-term. The SMNE also provides the specific organizational framework, commitments and performance metrics to assure that these initiatives will be successful in meeting our objectives of growth, competitiveness and jobs. The SMNE is a living document, that grows and develops while we advance in the implementation of our initiatives and strategies and feeds from our achieved goals.” José R. Pérez-Riera Secretary Department of Economic Development and Commerce September 2010, Economic Development Summit 2


Agenda 1

Click to edit Master text styles Introduction to Puerto Rico

2

The Economic Challenges are of Historic Proportions 3

The Strategic Model for a New Economy (“MENE�) 4

Results from the Implementation of the MENE 3


Puerto Rico is…

Click to edit Master text styles More than sun, surf and sand…

A metropolis…

Blessed with diversity…

Where business and relaxation coexist 4


Introduction to Puerto Rico

Click to Ouredit Location Master and Geography text styles

Puerto Rico (PR) is roughly 100 miles long and 35 miles wide, accounting for about 3,500 square miles of terrain

Our location in the Caribbean makes it a short flight to Miami (2.5 hours) and Caracas, Venezuela (1.5 hours)

PR consists of the main island of PR and various smaller islands, including the municipalities of Vieques and Culebra 5


Favorable location

Click Attractive to edit environment Master to visit text or relocate styles •

Ideal climate: average temperature of 83 °F in winter and summer 85 °F

Diversified land: coast, plains and mountains, including the only tropical forest in the National Forest System in the U.S., “El Yunque”

Great diversity of natural resources: Ranked among the jurisdictions with the best beaches in the world

6


Solid foundation for economic growth

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We are part of U.S. = Benefits and protections for investment •

Puerto Rico has many attributes to attract investment – Applicability of the U.S. Constitution and presence of the Federal Court

– Intellectual property protection under U.S. law – U.S. Currency, and banking regulated under the U.S. system (FDIC) – Under the U.S. customs border jurisdiction

– Participation in the trade agreement of the U.S. – Access to federal funds for infrastructure, social programs, education and research, among others

7


Favorable tax and cost structure

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A unique proposal for multinational corporations •

Foreign tax structure – There is no income tax at the federal level to residents of Puerto Rico – Tax treatment for Controlled Foreign Corporation (CFC), where Federal income taxes for U.S. based multinational corporations are deferred until profits are repatriated to the U.S. – Tax rates, favourable tax incentives

Competitive costs compared to the U.S. – The average cost of doing business in Puerto Rico is 10% lower than the U.S. average

– Among major U.S. cities, San Juan is the cheapest to do business

8


Puerto Rico‟s Modern and World Class Infrastructure

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“…among the best in Latin America & the Caribbean..” – Financial Times Extensive highway system, over 4,629 miles

Port of San Juan is the 8th busiest port in the U.S.

PR‟s air access is by far the best in the Caribbean

SJU is the busiest airport in the Caribbean

9


Puerto Ricoâ€&#x;s Modern and World Class Infrastructure

Click to Modern edit Master and world text class styles Necessary infrastructure for VoIP and broadband

Over 1.8 million visitors in just 5 years

PR Convention Center

Urban Train - Over 40,000 daily passengers

Over 3 million visitors in just 6 years

Coliseo de Puerto Rico

10


A modern and diversified economy

Click to editofMaster text styles Composition the economy for FY 2010 In $ Billions

GDP: $96.3 B

GSP: $63.3 B

$18,860

46%

Exports: $61.7 B

Imports: $40.8 B

The tourism sector represents 3.7% of GDP or $3.6 Billion

$44,640

Manufacturing

GDP per capita: $24,229

$13,670

FIRE*

Services

20%

14%

Source: Puerto Rico planning Board Nota: * FIRE is Finance, Insurance and Real Estate

$8,270

$7,710

Government

Commerce

9%

8%

$1,660

$891

Construction/Mining Transportation/Utilities

2%

1%

$553 Agriculture

<1% 11


Agenda 1

Click to edit Master text styles Introduction to Puerto Rico

2

The Economic Challenges are of Historic Proportions 3

The Strategic Model for a New Economy (â&#x20AC;&#x153;MENEâ&#x20AC;?) 4

Results from the Implementation of the MENE 12


We have lost the first decade of the 21st Centuryâ&#x20AC;Ś We CANNOT lose another!

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We have lost a decade in terms of economic growth

Average Growth Rate by Decade of Gross National Product (GNP)

6.9%

5.0% 3.7% 2.8% 1.8% -0.2% 1950s

1960s

1970s

1980s

Source: Puerto Rico Planning Board. Estimate takes into account the last revision of FY 09 (06/2009)

1990s

2000s 13


Puerto Rico is looking to have strong economic growth with the rest of the region

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The World Economy is slowly recovering from a deep recession 11.0% 8.9%

9.0%

7.7%

6.0%

5.0%

1.0% -1.0%

4.0%

2.5% 2.1%

5.0% 4.0% 3.6%

2.2% 1.7%

2003

2.7%

5.6% 4.7%

1.9%

2004

2005

6.0%

4.9%

4.2%

4.3%

3.2% 3.1%

6.3% 5.8%

2.7%

2.6%

3.1%

2.1%

1.5%

0.5%

2006

4.5% 4.0%

4.0%

3.3%

0.9% 0.4%

0.4%

2007

2008

2009

2010 P

2011 P

Perú América Latina y Caribe México EE.UU. Puerto Rico

-1.8% -2.4%

-1.2%

-3.0%

Peru exhibited a year of robust growth in 2008, one of the highest in the region

6.8%

7.0%

3.0%

9.8%

-2.8%

-3.7%

-3.6%

-5.0% -7.0%

Puerto Rico entered a deep recession in 2006, before other countries in the region

-6.5%

-9.0% Source: PR Planning Board, international Monetary Fund (IMF), Department of Econopmic Development and Commerce

14


Puerto Rico entered a recessionary cycle before the U.S. due to structural problems and misguided governmental policies

Click to edit Master textcontraction styles 5 consecutive years of economic % Annual Growth Real GNP Puerto Rico

• Government expenses increased 8% annually, while revenues increased 2%

% Annual Growth Real GDP U.S.

• Accelerated growth of Public Debt

Overheating Period 4.3%

3.3%

4.3%

3.2%

4.6%

4.1%

4.9%

Forecasts

Fiscal Imbalance Period 4.0%

3.0%

2.7% 1.5%

2.1% 1.1%

2.7%

3.1%

2.8%

3.1%

1.8%

1.9%

1.9%

2.8%

2.7% 0.9%

0.5%

0.7%

-0.3% -1.0%

-1.2%

Government Shutdown

-2.9% -3.0%

-4.0% -3.8%

Puerto Rico: Fiscal Years

1997

1998

1999

Source: Puerto Rico Planning Board

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009r

2010r

2011f

2012f 15


The unattended PR economic recession caused the use of debt to defray the gaping budget deficit of Puerto Rico

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Growth of the public debt has surpassed growth of the economy % Growth Public Debt % Growth Nominal GNP

16% 12%

8%

14.3%

14.4%

10.2%

6.0%

4%

6.7% 4.8%

3.0%

0%

10.9%

10.7%

7.1% 6.8% 6.1%

12.9%

9.0% 8.6% 8.2% 6.3% 6.5% 5.0%

8.1%

6.2% 6.8%

5.9%

1.6%

5.3% 2.3%

6.0%

8.8%

5.5%

9.6% 7.2%

7.3%

4.9% 3.6%

1.6%

1.0%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 PR Fiscal Year

Within the exception of FY 93, 95, 99-01, the public debt has grown at a faster rate than the economy in the last 16 years Source: Puerto Rico Planning Board

16


Breakdown of Puerto Ricoâ&#x20AC;&#x;s Public Debt

Click to the edit Master In 2010 public debt wastext $63.9 styles billion COFINA Debt not from tax on Treasury

$60.7

Municipal Extra-Constitutional Debt

$56.5

$63.9 14.2

Central Government (Constitutional Debt) Public Corporations

$39.4

$ Billions

$42.4

$46.0

$46.2

5.4 3.3 2.7

$35.8 $26.2

$29.0

$32.1

10.1

28.2

2000

2001

2002

Source: Government Development Bank

2003

2004

2005

2006

2007

2008

2009

2010 17


Puerto Rico‟s credit, in December 2008, was on the verge of obtaining a non-investment grade (junk status) rating

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A credit downgrade would have had a devastating impact in the economy BBB+

Standard & Poor’s

BBB+ BBB

BBBNonInvestment Grade

PREPA

PRHTA

GDB

PRASA

BBB-

Ports

Year 2009

means:

BBB-

Inability to finance operations

Central Government

Moody’s Year 2009

Baa2 Baa3

Baa3

Baa3

Ports

Central Government

N/A PREPA

Source: Government Development Bank

Estimated loss of 100,000 jobs

Substantial loss of savings, pension funds and investments

A3

NonInvestment Grade

Junk Status

PRHTA

GDB

PRASA

Prolonged economic depression

It could take us 10 years to recuperate 18


Puerto Rico‟s global competitiveness is degrading and the most problematic aspects of doing business in Puerto Rico are under the government‟s purview

Click to edit Master text styles Factors that adversely affect the ranking

Global Competitiveness Ranking Rankings de Competitividad Global

0

U.S.. Singapore

20

Ireland.

1

7

5

22

22

28

28

36

2

41

25 30

138

2

Out of 139 countries 123

4

3

Chile PR

40

1

120

29 30 41

42

100 89

87

87

80 68

60

After 2 years of consecutive drops, for the first time PR‟s ranking had a small improvement

80

49

45

40

96 100

60

98

95

22

101

Dominican Republic

20

28

24 17

20

16

1

0

120

2007

Burden of Gov. Regulation 2008

2009

Source: World Economic Forum (WEF) 2010 - 2011

2010

2011

Puerto Rico

Total Tax Rate U.S.

Ireland

Internet Usage Chile

Singapore 19


We have acknowledged our deficiencies, and have reacted in a quick and responsible manner

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The World Bankâ&#x20AC;&#x;s Doing Business 2011 ranked Puerto Rico #47 Covers 183 economies

160

Our main challenges include excessive government bureaucracy, poor government services, and an unbalanced tax structure

150

140 127

120

108

105

107

110

107 99

97

100

96

86

81

80 67

60

62

54

53 46

40 27

20

16

58

44

32 24

22 12

9

15 6

20

16

25

20 8

5

23 14

0 Starting a Business

Dealing with Construction Permits

Registering Property

Puerto Rico Source: World Bank â&#x20AC;&#x201C; Ease of Doing Business 2011

Getting Credit

Protecting Investors

United States

Paying Taxes Trading Across Borders

Peru

Enforcing Contracts

Closing a Business

Mexico 20


Agenda 1

Click to edit Master text styles Introduction to Puerto Rico

2

The Economic Challenges are of Historic Proportions 3

The Strategic Model for a New Economy (â&#x20AC;&#x153;MENEâ&#x20AC;?) 4

Results from the Implementation of the MENE 21


The Government has formulated a vision for Puerto Rico and a strategic model to reach it Vision

Planedit for theMaster Strategic Sustainable Click to text styles Development of Puerto Rico (“PIDES”, for its Spanish acronym)*

“Economic development that is globally competitive and locally sustainable, and where the free market is fostered”

Action

Economic Development

Infrastructure Development

Social Development

Strategic Model for a New Economy** * As part of developing PIDES, 52 round table meetings and 6 public hearings were held throughout the Island. **Its Spanish acronym is MENE = Modelo Estratégico para la Nueva Economía. *** MTSS = Modelo de Transformación y Superación Social

22


Conceptual Framework of the Strategic Model for a New Economy (MENE*)

Click to edit Master text styles OBJECTIVE: Growth, Competitiveness and Jobs RESTORE GROWTH

INFRASTRUCTURE

Short-, Medium- and Long-Term Growth Measures

Strategic Sectors

METRICS Dashboard

Physical Infrastructure

COMPETITIVENESS

Key Reforms

METRICS Dashboard

Strategic / Regional Projects

Additional Measures

FISCAL AND CREDIT STABILIZATION

* MENE is the Spanish acronym for Strategic Model for a New Economy.

TRANSPARENCY AND COMMUNICATION


Conceptual Framework of the Strategic Model for a New Economy

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TRANSPARENCY AND COMMUNICATION

24


The Strategic Model is based on the free flow of information, which facilitates its widespread adoption

TRANSPARENCY AND COMMUNICATION

Click to edit Master text styles TRANSPARENCY COMMUNICATION Objectives of the Transparency Policy: •

• •

To promote institutional accountability

Objectives of the Communication Policy: •

To promote open debate and collective participation

To eliminate environments that promote preferential treatment and favoritism

To convey information about the Island‟s important events

To regularly inform about the efforts in economic development

To facilitate citizen oversight

To promote understanding of the issues and the proposed solutions

To foster trust in administrative procedures

PROMOTE INVESTMENT and HEALTHY GOVERNMENT

CONVEY THE VISION and A SENSE OF DIRECTION

25


Conceptual Framework of the Strategic Model for a New Economy

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FISCAL AND CREDIT STABILIZATION TRANSPARENCY AND COMMUNICATION

26


Act No. 7 of 2009 – Fiscal Emergency Act FISCAL AND CREDIT STABILIZATION

A far reaching, comprehensive legislation that establishes balanced measures executed through a Restructuring Board

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Revenues

Tax Compliance

• 4 permanent revenue measures: • Sin excise taxes (cigarettes, alcoholic beverages, motorcycles) • Change in AMT - Individuals

• Aggressive tax compliance and oversight program • Customer service and collections call center • Lien attachment empowerment • More resources allocated to tax collections • Changes in legislation and procedures to allow Treasury to waive surcharges and expedited lien filling process

• 6 temporary revenue measures: • 5% surtax on individuals (3 yrs.) • 5% surtax on corporations (3 yrs.) • SUT collection/compliance enhancements • 5% tax on Credit Unions (3 yrs.) • Control of reseller exemptions • 5% tax on International Banking Entities (3 yrs.) • Special tax on residential RE (4 yrs.) Fiscal • Moratorium on tax credits (3 yrs.) Restructuring &

Cost Reduction

Stabilization Board

Financial

• Required reduction of $2 billion in expenses: • Multi-phase laddered program with voluntary and involuntary reduction of payroll • Reduction of operational expenses and medical insurance

• Allocation of 1.75% additional SUT to bridge the timing gap of balancing the budget and protect GO credit from deficit impact

• Employee voucher program and medical insurance to support displaced workers

• Sales of local saving bonds

Source: Government Development Bank

• Multi-year debt service restructurings

27


We have eliminated the practice of overestimating revenues to sustain high expenses

FISCAL AND CREDIT STABILIZATION

Click to edit Master text styles General Fund Net Revenue Projections ($ Billions)

Responsible Budgetary Practices

$9.684

$9.684

$9.077 $8.800

$8.650 $8.133

$7.600

$7.670

$8.306

$8.541

$8.862

$8.359

$7.760

$7.691

04-05

05-06

06-07

07-08

08-09

09-10

10-11 P

11-12 P

General Fund Net Revenues Past Administration Revenue Projections Current Administration Revenue Projections Current Projection of General Fund Revenues Source: Government Development Bank

28


Fiscal reconstruction measures are yielding results and we are closing the structural deficit

FISCAL AND CREDIT STABILIZATION

Click Aimedto at aedit balanced Master budgettext in juststyles 4 years ($ Billions)

Inherited deficit

Forecast

$3.3 GOAL

$2.5

BALANCED BUDGET

$1.0 $0.6

FY 08-09

FY 09-10

Expenses

Expenses

Source: Government Development Bank

FY 10-11 Current

FY 11-12

FY 12-13


Thanks to the fiscal measures taken, Puerto Rico no longer has the highest budget deficit gap in the US

FISCAL AND CREDIT STABILIZATION

Deficit a % of Revenuestext FY2008-2009 Click to asedit Master styles 43.6%

36.8%

Source: Government Development Bank of Puerto Rico, Center on Budget and Policy Priorities

36.7% 22.2%

19.9%

18.8%

15.1%

8.5%

Puerto Rico

Arizona

California

Florida

Nevada

New Jersey

Illinois

Michigan

BBB-

AA-

A-

AAA

AA+

AA

A+

AA-

51

50

49

48

47

46

45

44

Ranking

Budgeted deficit as a % of Revenues FY2011-2012 45.2% 37.4%

Nevada Ranking

29.3%

New Jersey Califronia

14.9%

14.6%

11.5%

Florida

Illinois

Arizona

7.1%

5.9%

Puerto Rico Michigan

AA+

A+

AA

AA-

A-

AAA

BBB

AA-

51

50

48

37

36

29

15

13 30


On April 19, 2010, Moody‟s Investor Services recalibrated its municipal ratings to the Global Scale

FISCAL AND CREDIT STABILIZATION

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Rating of Central Government bonds after recent adjustment: A3 A1 1970-1975 Baa1 1976-2004

Rating assigned by Moody‟s is the highest since April 1975

A3 April 2010

Increase of 3 notches

Baa2 2005-2006

Baa3 2006-2009 NON-INVESTMENT GRADE (JUNK) Source: Government Development Bank

31


Puerto Rico received the maximum possible increase of 3 notches as a result of AND CREDIT the Moodyâ&#x20AC;&#x;s municipal rating recalibration FISCAL STABILIZATION

Click editand Master text styles Listto of State Territory recalibration State

Before

Actual

Change

State

Before

Actual

Change

Puerto Rico

Baa3

A3

3

Michigan

Aa3

Aa2

1

California

Baa1

A1

3

Mississippi

Aa3

Aa2

1

Arizona

A1

Aa2

2

Montana

Aa2

Aa1

1

Illinois

A2

Aa3

2

Nevada

Aa2

Aa1

1

Louisiana

A1

Aa2

2

New Hampshire

Aa2

Aa1

1

USVI

Baa3

Baa1

2

New Jersey

Aa3

Aa2

1

Alabama

Aa2

Aa1

1

New Mexico

Aa1

Aaa

1

Alaska

Aa2

Aa1

1

New York

Aa3

Aa2

1

Arkansas

Aa2

Aa1

1

North Dakota

Aa2

Aa1

1

Colorado

Aa2

Aa1

1

Ohio

Aa2

Aa1

1

Connecticut

Aa3

Aa2

1

Oklahoma

Aa3

Aa2

1

Hawaii

Aa2

Aa1

1

Oregon

Aa2

Aa1

1

Idaho

Aa2

Aa1

1

Pennsylvania

Aa2

Aa1

1

Indiana

Aa1

Aaa

1

Tennessee

Aa1

Aaa

1

Iowa

Aa1

Aaa

1

Texas

Aa1

Aaa

1

Kentucky

Aa2

Aa1

1

West Virginia

Aa3

Aa2

1

Maine

Aa3

Aa2

1

Wisconsin

Aa3

Aa2

1

Mass.

Aa2

Aa3

1

Source: Government Development Bank

35 of 51 were recalibrated 32


The three principal credit agencies have increased Puerto Rico‟s credit rating, which was at the verge of junk status at the end of 2008

FISCAL AND CREDIT STABILIZATION

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Moody‟s Investors Service/ Fitch Ratings / Standard & Poor‟s 2010: A3

2009: Baa3

2011: BBB 2010:

N/A

+

2011: BBB

2010: BBB-

33


The market has already recognized Puerto Rico‟s superior credit rating

FISCAL AND CREDIT STABILIZATION

Spread differential between PR GO Bonds and Municipal State GO Index

Click to edit Master text styles (bps)

Basis points (bps)

Current Administration

350.00

Yield Municipals State GO 22yr+

300.00

PRC 5% 7-1-2029

250.00 200.00

12/31/2010 2.36%

0.37% 0%

150.00

100.00 50.00 -

“Puerto Rico’s spread over the triple – A scale has been narrowing down practically without interruption for a year as the government there has cut spending and raised taxes”. - The Bond Buyer Source: Government Development Bank

34


Puerto Rico's situation is more favorable compared with what some European countries are facing now

FISCAL AND CREDIT STABILIZATION

Unemployment Deficit as Debt as Click to edit Master text Rate % of GDP %styles of GDP

Puerto Rico

16.0%

2.2%

Credit Rating (S&P/ Moody‟s)

59%

BBB/A3

Moody‟s raised Puerto Rico three notches instead of just one Al comienzo del 2010

Spain

20.5%

9.2%

60.1%

AA/Aa2

Moody‟s lowered its rating by one notch in March 2011

Ireland

14.9%

12%

107%

BBB+/Baa1

Moody‟s lowered its rating by 5 notched in December 2010

Portugal

11.1%

8.6%

83.2%

BBB-/Baa1

Moody's lowered its rating in April 2011

Greece Source: Planning Board, Bloomberg

14.1%

10.6%

150%

Credit rating was “A” at the beginning of 2010

Chatarra

BB-/B1


Conceptual Framework of the Strategic Model for a New Economy

Click to edit Master text styles

RESTORE GROWTH Short-, Medium- and Long-Term Growth Measures

Strategic Sectors

FISCAL AND CREDIT STABILIZATION TRANSPARENCY AND COMMUNICATION

36


Restoring economic growth is based on the effective implementation of short-, medium- and long-term growth measures

RESTORE GROWTH

Click to edit Master text styles

A combination of measures to restore economic growth Federal Stimulus Plan (ARRA)

• Objective: Invest $7.030 billion in the Puerto Rican economy, of which 70% or $5.007 billion have been disbursed

Local Stimulus Plan (PEC)

• Objective: Invest $500 MM in stimuli at the local level, of which 63% or $316 MM are in the process of being disbursed

Promotion

• Objective: Produce a favorable perception of Puerto Rico as an ideal place to visit, do business, invest and live in

Incentives Comercio

• Objective: Promote Puerto Rico‟s incentives to attract new investments to our Island

Integration into the Global Economy

• Objective: Foster the development and strengthening of local companies capable of exporting competitive goods and services

Transition to a Knowledge based Economy

• Objective: Leverage the industrial base to create new jobs and businesses by creating new clusters and consortia with a focus on innovation


$5.007 billion or 68% of the Federal Stimulus Plan has been disbursed

RESTORE GROWTH ARRA

Click to editDisbursements Master text styles Local Agencies

Municipalities

Federal Agencies

Private Sector/ Non-Profit

TOTAL

$3.683 B

$57 MM

$1.205 B

$62 MM

$5.007 B

Allocations Local Agencies

Municipalities

Federal Agencies

Private Sector/ Non-Profit

TOTAL

$5.251 B

$115 MM

$1.484 B

$179 MM

$7.030 B

Performance 70% Source: Puerto Rico Infrastructure Financing Authority

50%

81%

35%

70% 38


$316 MM or 63% of the Local Economic Stimulus Plan has been disbursed

RESTORE GROWTH PEC

Click to editDisbursements Master text styles Infrastructure

Housing Stimulus

Small Business Loans

Other

Total

$174 MM

$81 MM

$40 MM

$21 MM

$316 MM

Allocations Infrastructure

Housing Stimulus

Small Business Loans

Other

Total

$327 MM

$81 MM

$40 MM

$52 MM

$500 MM

Performance 53% Source: Government Development Bank

100%

100%

40%

63% 39


$303 MM of the Local Stimulus Plan has been reallocated for immediate impact in the economy

RESTORE GROWTH PEC

Click to editofMaster text styles Redistribution the Local Stimulus Plan TRANSPORTATION

TOURISM

P3s

GOVERNMENT TRANSFORMATION Now

Bus Rapid Transit Toa Baja North ($70 MM) ($5 MM)

Construction of New Hotels ($15 MM)

Intersection 5177 ($10.8 MM) Bayamon ($5.5 MM) Intersection 177 Bayamón ($5.5 MM)

Golden Triangle ($6.1 MM) Aguadilla Airport and Pier 3 ($5.25 MM)

Source: Government Development Bank

Pre-Development Cost – P3s ($20.5 MM)

EMPOWERMENT TO ENTREPRENEURS

Future

Implementation of Permits Reform ($4 MM)

Boost to SMBs ($40 MM)

“Desarrollo para el Pueblo” ($8 MM) “Pa’ Mi Gente” ($5 MM) 40


The "Puerto Rico Does It Better" campaign is designed to attract investors and tourists and emphasize the Island's commitment to quality Promotion

RESTORE GROWTH

Produce a favorable perception of Puerto Rico as an ideal place to visit, do business, invest Manufacturing Initiatives and live in

Click to edit Master text styles

Puerto Rico Brand

• Objective: Through "Puerto Rico Does it Better" we are telling the world that Puerto Rico offers quality in all of the sectors of the economy and we establish a unified vision of the Puerto Rico brand

A Guide to Doing Business in Puerto Rico

• Objective: Provide the investor community with the most complete and comprehensive guide on doing business in Puerto Rico, incentives and resources available as well as procedures to be followed

Rums of Puerto Rico

• Objective: Guarantee the longevity and growth of the rum industry in Puerto Rico and its contribution to the economy

Events

• Objective: Exposure through massive global media outlets and generate a high amount of room nights to achieve a high economic impact and strengthen our tourism sector 41

MENE > Restaurar el Crecimiento > Medidas de Crecimiento > Promoción


ONE BRAND, ONE IDEA, ONE VOICE RESTORE GROWTH PROMOTIONS

PUERTO RICO = Quality

Click to edit Master text styles

The core of the message that must be delivered to all audiences is the fundamental idea that Puerto Rico offers QUALITY in all its facets: • • •

Quality of its people‟s capacity and spirit Quality of its products and infrastructure Quality in work/business/investment and leisure offerings

OFF-ISLAND Goal: Build Puerto Rico‟s reputation to generate favorable perceptions/predispositions towards the Island as a place to visit, do business, live, and source/consume our products and services

ON-ISLAND Goal: Build pride and hope in the people and reinforce the perception that the Administration is doing its part to stimulate economic activity and the outlook for the future

PUERTO RICO DOES IT BETTER

42


The results are conclusive, the people of Puerto Rico largely favor “Puerto Rico Does RESTORE GROWTH PROMOTIONS it Better” Of the slogans launched in tourism promotion campaigns, which do you like the most and which would you use to promote the island?

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PUERTO RICO LO HACE MEJOR

49%

Puerto Rico Somos Todos

28%

Puerto Rico, la Perla del Caribe

21%

Tú eres Puerto Rico

19%

No sabe/No responde

13%

Puerto Rico Mucho Más que Playas

4%

Las Islas de Puerto Rico

4% 43


We have published a comprehensive guide of the steps, requirements and information needed in order to do business in Puerto Rico

RESTORE GROWTH PROMOTIONS

Click to edit Master text styles Opening message to do Business â&#x20AC;˘

This guide is the most comprehensive government publication on Puerto Rico as an investment destination. Through this new tool, we will show the island as one of the markets more flexible, reliable and attractive in the world

â&#x20AC;˘

The guide is available on the websites of the agencies related to economic development and includes the following sections: 1

An Introduction to Puerto Rico

5

Work-force and Labor Laws

2

Establishing a Business

6

Real Estate, Construction and Permits

3

Tax Systems

7

Environmental Law

4

Incentives

8

Financial System and insurance 44


We have approved incentives to stimulate economic activity in strategic sectors Incentives

Housing Incentives

Tourism Development Tourism Incentives for the Economic Comercio Development of Municipalities Development of the Film Industry Renewable Energy International Insurance

RESTORE GROWTH INCENTIVES

Click to edit Master text styles Manufacturing Initiatives

Promote Puerto Rico‟s incentives to attract new investments to our Island

• Objective: Act No. 132 of 2010: Create an incentives program for purchasing residential and commercial properties

• Objective: Act No. 74 of 2010: Viability for the development of world-class tourism projects through an aggressive incentives program

• Objective: Act No. 118 of 2010: Lay the groundwork to expand our tourism development in strategic locations to improve our position as a premier tourist destination

• Objective: Act No. 27 of 2011: Provide a framework for continued development of film industry infrastructure and tax incentives to attract foreign capital • Objective: Act No. 83 of 2010: Create measures to stimulate the development of sustainable energy systems by establishing the Green Energy Fund • Objective: Act. No. 98 of 2011: Amend the Insurance Code of Puerto Rico to secure a tax regime that will apply to international insurers 45


We acknowledge the need of stimulating the real estate market to accelerate our economic recovery and have proposed new measures to do so

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Click to edit Housing Master Incentivestext Act styles •

0 Charges for stamps and vouchers to the buyer

0 Taxes on property during 5 years for new housing, purchased during the time window

0 Taxes on capital gains earned in selling of existing residential and commercial properties, as long as value does not exceed $3 MM

Those who purchase property in newly constructed project during this window of opportunity will also be exempt from capital gains tax earned in the future

Those who purchase existing residential property will only pay half of the rate of capital gains taxes

50% Less in fees for stamps and vouchers to the buyer for existing properties 46


A revised and attractive incentives package for tourism development activities

RESTORE GROWTH INCENTIVES

Click toTourism edit Master text Development Act styles •

This law is intended to facilitate the establishment of tourism projects on the island. Eligibility includes businesses such as: –

Hotels, condo-hotels, timeshares/vacation clubs, hostels, guesthouses, excludes the operation of casinos

Theme parks, golf courses, marinas for tourism purposes, port facilities in areas that promote tourism activities

Natural Resources as a source of entertainment value

Other entertainment or recreational tourist facilities

Benefits under this law shall be valid for a period of 10 years from the date of opening of the eligible tourism project and is entitled to a 10 year extension: –

Tax credit of 10% of the total project cost or 50% of cash from investors, whichever is lower

100% exemption on municipal construction excise tax

100% exemption on taxes on imported goods and sales tax

100% exemption on municipal licenses

90% exemption on income tax

90% exemption on property tax 47


A new incentives law that propels the development of world-class tourism projects

RESTORE GROWTH INCENTIVES

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Tourism Incentives for the Economic Development of Municipalities Act •

Act No. 118 - “Tourism incentives for the economic development of Municipalities Act” provides incentives for investments in facilities that will generate employment and promote economic development and growth in municipalities

The basic components to be eligible for the incentives include: –

A world-class hotel with a classification of at least 4 stars

Variable commercial and recreational establishments

Other tourism facilities that incorporate the 4 star hotel caliber, including casinos

The project must be developed exclusively with private capital

The Decrees will be granted according to the following Gradual Tax Scale, that will establish the payment of contributions based on the net income of the gaming operation of the Tourist Facilities, as established in the following: –

Investment of $500 MM – a fixed tax rate will be offered in the amount of 25%

Investment of $750 MM – a fixed tax rate will be offered in the amount of 15%

Investment of $1.0 B – a fixed tax rate will be offered in the amount of 10%

Investment of $1.25 B – a fixed tax rate will be offered in the amount of 8% 48


The revenues generated by this act will be allocated in a balanced manner

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Tourism incentives for the economic development of municipalities Act •

Revenues resulting will be distributed in the following manner: 30%/40%/30% – 30% will revert annually to the General Fund of Puerto Rico – 40% to infrastructure projects to be developed within adjacent municipalities to the municipality where the Project will be developed: • 1/4 assigned for projects located in Vieques • 1/4 assigned for projects located in Culebra • 1/4 assigned for the Green Triangle, as a new eco-tourist destination • 1/4 and any quantity of left over funds or not utilized will be used for projects within adjacent municipalities to the municipality where the Project will be develop. The Selection Committee will have the discretion to identify the infrastructure projects (including renewable energy projects)

– 30% will be allocated in the following manner: 1/3 to the Tourism Company ;1/3 to the Authority for the Redevelopment of Roosevelt Roads;1/3 to the Office of the Commissioner of Municipal Affairs; these funds will be distributed among municipalities with less than (40,000) inhabitants through competitive proposals for eco-tourist development projects 49


Puerto Rico will further boost its location appeal with its expanded film law

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Economic incentives for the development of the film industry •

Production incentives – – –

Infrastructure incentives – – –

40% tax credit on PR production expenditures 20% tax credit on production expenditures on non-resident talent provided they are subject to income taxation in PR Expand definition of qualifying media projects to include: (1) feature and short films; (2) documentaries; (3) series in episodes, mini series, and similar television programs; (4) music videos, (5) national and international commercials; (6) video games; (7) recorded live performances and; (8) original sound track recordings Increase annual aggregate cap from $15 MM to $50 MM for PR production expenditures 25% tax credit on costs for development or expansion of infrastructure projects Minimum hard costs of $5 MM Maximum aggregate annual cap of $10 MM and lifetime cap of $150 MM for all infrastructure credits

Film Development Zone – PPP Operational Structure –

Persons engaged in this qualifying media and infrastructure projects, as well as the operator of the large-scale studio within the FDZ shall be eligible for favorable tax treatment: • 4% fixed income tax rate • 100% exemption on dividends • 90% exemption from municipal and state taxes on property • 100% exemption from municipal license taxes, excise taxes and other municipal taxes 50


The proposed Incentives Program for the Green Energy Fund will benefit everyone in RESTORE GROWTH INCENTIVES Puerto Rico

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Act No. 83 of 2010 – “Green Energy Incentive Law”

Tier 1

Small Scale • Allow individuals and small companies have more control over energy prices thus reducing expenses and increasing available incomes • Project size: 0 - 100 kW • Potential Markets: Residential & Small Businesses • Incentive: Up to 60% of total system cost through a Rebate Program

Tier 2

Medium Scale • Establishes a dynamic market that will attract new investments in the manufacturing of renewable energy equipments • Project size:100 kW - 1 MW • Potential Markets: Industrial and Large Commercial • Incentive: Up to 50% of total system cost through a Rebate Program • Will be granted through a competitive process and on a quarterly basis

Tier 3

Utility Scale • Considerably reduces oil dependency, creates an economic stimulus and green jobs are created • Project size: 1 MW+ • Potential Markets: Independent Power Producers • Incentive: Access to the RECs market 51


The proposed incentive programs in the Green Energy Fund will benefit consumers as well as investors

RESTORE GROWTH INCENTIVES

Click to edit Master styles Additional incentives under text the Energy Bill •

Furthermore, the Energy Bill creates a special tax exemption for companies with the primary purpose of renewable energy generation

These companies will have the advantage similar to those in Act 73 of 2008: –

A fixed tax of 4%

A reduction on the property and municipal tax

In addition, the life span of the decrees will be of 25 years which is consistent with the expected life of a renewable energy equipment and their commercial agreements (e.g. PPAs)

Other benefits include: super-depreciation of buildings, structures, machinery, and equipment; and eligibility for tax-credits related to the use of locally-manufactured

Life of equipment: 25 years

Tax Decree: 25 years

products, job creation, and research and development

52


Comprehensive program to promote strategic sectors and initiatives of our economy

RESTORE GROWTH INCENTIVES

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Economic incentives for the development of PR Act •

The Economic Incentives for the Development of PR Act provides attractive tax and other incentives to foster investment in key sector of PR‟s economy. Export services such as Financial Services, Insurance and Consulting are eligible for some of the incentives provided under this law Among the benefits include: –

4% or 8% fixed income tax rate

2% or 12% withholding tax on royalty payments

Pioneer industries are subject to an income tax rate of 1% or 0% in those cases where the intangible property was created or developed in Puerto Rico

Minimum combined tax rate of 3%, if at least 50% of the exempt business shareholders are natural persons residents of Puerto Rico

Minimum combined tax rate of 1%, if the exempt entity is considered to be a small or medium business (average gross income of $10 million or less during the previous three years)

90% exemption from personal and real property taxes

60% exemption from municipal license taxes (75% exemption in the case or small and medium businesses)

100% exemption from state and local sales and use tax on raw material 53


The DEDC will implement a strategy to promote the virtues of PR as an ideal location for the export of financial services

RESTORE GROWTH INCENTIVES

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Economic incentives for financial export services Qualified Export Services Export services incentives 4% income tax 90% exemption on property tax 60% exemption on municipal tax 0% tax on dividends after the first $250,000 in compensation payments

Investment Banking Asset Management

Promotional Strategy

Alternative Investment Management Management of activities related to Capital Investment Management of Hedge Funds Private Equity Placement

Promotional Strategy • Incorporate into Promotional Road Show • Meet with local and foreign bankers on the benefits of the incentives Promotional Strategy • Integrate the financial services and insurance sector into the Branding Campaign

Equity Pool Management

Trust Fund Management Escrow Account Management

54


Long-term growth measures to achieve sustainable economic development in a diversity of sectors Integration into the Global Economy Foreign Trade Zone

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Foster the development and strengthening of local companies capable of exporting Manufacturing Initiatives competitive goods and services

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• Objective: Allows companies to obtain significant financial savings, strengthening their capacity to venture into new markets

US Commercial Service and World Trade Center

• Objective: Promote trade and private investment, strengthen competitiveness and guarantee fair and balanced trade

Air and Maritime Access

• Objective: Maintain and strengthen Puerto Rico‟s position as the hub of the Caribbean and main homeport and continue diversifying its air and maritime access

Global Comercio Presence

• Objective: Restructure Puerto Rico‟s promotional programs and reorganize Puerto Rico‟s offices abroad to assure its place in the global economy

Trade Missions

• Objective: Promote international trade, strengthen export opportunities for products and services from local businesses and strengthen commercial ties with other countries

Federal Government Procurement

• Objective: Insert companies with operations in Puerto Rico more effectively in the Federal procurement market 55


Long-term growth measures to achieve sustainable economic development in a diversity of sectors Integration into the Global Economy

Objective:

RESTORE GROWTH GLOBAL INSERTION

Foster the development and strengthening of local companies capable of exporting Manufacturing Initiatives competitive goods and services

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• To foster investment and exports in the following sectors: – High Technology (information technology, telecommunications and aerospace) – Life Sciences (pharmaceutical, biotechnology and medical devices)

Strategies/ Initiatives

– Advanced Services (financial, computer technology, engineering, design, research and development, health and entertainment) • Reestablish the External Trade Board do define public policy on export of goods and services • Revise and expand curriculum of the Institute of External Trade and Entrepreneurial Development (ICEDE, for its Spanish acronym) • Restructure promotional programs of PRIDCO, Tourism Company and Department of Agriculture among others, and reorganize the Puerto Rico offices • Maximize the use of the US Commercial Service and the World Trade Center

• Establish alliances with local and international consortia to promote exports through trade treaties such as CAFTA-DR 56


A two-pronged approach to attract domestic/ foreign investment and expand the market for export of goods and services

RESTORE GROWTH GLOBAL INSERTION

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A strategy focused on the sectors of the Strategic Model for a New Economy

Domestic International

Jurisdictional Focus

Direct Investment

Market Expansion

• Attract established cluster anchors in target areas from the West Coast and the Southwest region: ― Aerospace ― Information Technology ― Life Sciences ― Creative Services

• Export of advanced services to established clusters in target areas and growing Hispanic niches in the US

• Attract new international investment partners in target areas looking to enter the US and Latin American markets from Western Europe and Asia

• Export of advanced services to developing markets in Latin America and the Caribbean Basin by highly-educated bilingual US citizens 57


The Foreign Trade Zones offer a great opportunity to local companies to be more competitive in the global market

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Foreign Trade Zone: Allows companies to obtain significant financial savings, strengthening their capacity to venture into new markets

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• Puerto Rico has the largest, noncontiguous FTZ system in the United States • The system allows companies to obtain significant financial savings, since raw material, components and packaging can be transported tax free through these zones and items shipped abroad after processing are exempt from U.S. taxes • Puerto Rico has three FTZs: − FTZ #7, operated by the Puerto Rico Industrial Development Company (PRIDCO) − FTZ #61, is operated by PROMOEXPORT, a unit of the DEDC's Commerce & Export Company (CCE by its Spanish acronym) − FTZ #163, is operated by the Ponce Foreign Trade Zone Development Corporation (CODEZOL, C.D.) • Benefits of the FTZ in Puerto Rico include: − Deferment of federal customs duties − Deferment of Puerto Rico excise tax − No payment of Municipal License Taxes on exports outside the United States. − No duty paid on damaged, scraped and obsolete merchandise − U.S. customs duties are not owed on labor, overhead and profit attributed to production operations in a FTZ − Reduction of time and effort in the activation process 58


The U.S. Commercial Service in Puerto Rico is part of a global network with presence in over 100 cities in the U.S. and in over 75 countries

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US Commercial Service : Promote trade and private investment, strengthen competitiveness and guarantee fair and balanced trade

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• The U.S. Commercial Service is the trade promotion arm of the U.S. Department of Commerce‟s International Trade Administration • It has presence in 107 cities in the US (including San Juan) and in more than 75 countries around the world

• Helps companies get started in exporting or increase sales to new global markets. • U.S. Commercial Service services include: Market Intelligence, trade counseling, business matchmaking, trade advocacy • Presence in US consulates – resource use (venue rental, equipment) • Increase awareness and facilitate access to the services offered by the U.S. Commercial Service to businesses in Puerto Rico that are looking to export their goods and services and do business globally • The signing of Memorandum of Collaboration between the DEDC and the U.S. Commercial Service is about to take place to establish closer ties with the U.S Commercial Service and its worldwide network 59


The Puerto Rico World Trade Center is

among the most complete in the world

RESTORE GROWTH GLOBAL INSERTION

World Trade Center: Promote trade and private investment, strengthen competitiveness and guarantee fair and balanced trade

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• The World Trade Centers Association (WTCA) is an organization that brings together exporters, importers and service providers to facilitate international trade • The WTCA now represents over 300 members in close to 100 countries. • WTCs service more than 750,000 international trading corporations • The Puerto Rico Commerce and Export Company has the license for the Puerto Rico World Trade Center • It provides its members with the most recent innovations in international commerce, valuable databases, as well as access to new international marketing channels under a prestigious global brand • It is “one-stop trade information hub” where an international business person is offered the full range of services such as market research, WTCA OnLine, trade shows & exhibit space, business services, trade education, group trade missions and WTC clubs • Since PRWTC services are reciprocal, members can access them at all operating WTCs around the world

60


Air and maritime access is a key element of Puerto Rico‟s economic development

RESTORE GROWTH GLOBAL INSERTION

Maintain and strengthen Puerto Rico‟s position as the hub of the Caribbean and main homeport and continue diversifying its air and maritime access

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• Managing air and maritime access with an integrated approach is one of the DEDC‟s economic development priorities • Air and maritime access is a key element of the economic development of Puerto Rico, given that it makes Puerto Rico more accessible to other markets for the benefit of strategic economic sectors such as tourism, commerce and the development of new projects • We are working towards having more efficient and modern maritime ports and airports to be able to export our products efficiently, imports what we need and take advantage of our privileged geographic position as a natural gateway to the United States • Puerto Rico faces challenges from other regions, who do not have such a strategic location, but are looking to replace us as the Caribbean hub, which is why it is important to guarantee the quality and efficiency of our ports • We look to exploit the multiple maritime ports that are present in the Island enhancing and extending the supporting infrastructure to further facilitate our development as a natural strategic location for maritime traffic • We will establish an alliance with the private sector and will continue collaborating with state and federal agencies to significantly increase inspection of containers that enter the Island 61


Puerto Rico is the hub of the Caribbean and maintaining this position is key to the Island‟s economic development

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International seat capacity Click to edit Master text styles

U.S. inbound seat Capacity

• Puerto Rico maintains 30% of U.S. seat capacity into the Caribbean

• San Juan receives service from 25 cities in the Caribbean

• Puerto Rico has nearly 3 times the U.S. inbound seat capacity of the next largest markets

• American Eagle maintains its Caribbean hub in San Juan

• 63 daily flights from 20 major U.S. cities PR‟s air access to the U.S.

• Puerto Rico has direct access to Madrid, Panama, Toronto, London and Caracas

PR‟s air access to the Caribbean

PR‟s air access to world connections

62


Maintaining a diversified airline mix servicing Puerto Rico is key to air access sustainability

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Click edit text growing styles Puertoto Ricoâ&#x20AC;&#x;s air Master access continues Legacy Carriers

Low Cost Carriers

International Carriers

~22 daily flights ~39 daily flights ~6 daily flights ~3 daily flights ~4 daily flights ~5 daily flights 13 destinations 21 destinations 4 destinations 2 destinations 3 destinations 2 destinations

~15 daily flights 5 destinations

~6 daily flights ~6 daily flights 3 destinations 4 destinations

~4 weekly flights ~4 weekly flights ~1weekly flights ~1 weekly flights ~2 weekly flights ~1 weekly flights Toronto London London Toronto Madrid Panama

Regional Carriers

63


Puerto Rico maintains a strong and proactive approach towards air access development

RESTORE GROWTH GLOBAL INSERTION

Click to editweekly Master styles 250 additional flightstext in 2009-2010 U.S. +26/week

International

New Airlines

+59/week

+109/week

New airline and route to Gatwick!

+4/week

+1/week

+21/week

+21/week

+8/week

New route between San Juan and St. Barts 64


Puerto Rico maintains a strong and proactive approach towards air access development

RESTORE GROWTH GLOBAL INSERTION

Click Recent to edit Master text styles announcements for 2011 •

Flight Plan 2020 restructures services to Puerto Rico – AA will have a reduction of 6 daily flights (non-exclusive destinations) – AE will have a reduction of 13 daily flights

Jet Blue

• • •

Announced new daily service to Jacksonville beginning in 2011 Announced new 2 daily services to Tampa beginning in 2011 Announced daily service to St. Martin beginning in 2011

Air Tran

• • •

Announced new 2 daily services to Tampa beginning in 2011 Announced additional 2 daily services to Baltimore beginning in 2011 Southwest purchased Air Tran and considers expanding its presence in 2011

British Airways

Announced new 2 weekly services from London beginning in 2011

Condor

Announced 2 weekly services to Frankfurt beginning in 2011

The Aguadilla Airport will receive charter flights from Madrid and Barcelona beginning in 2011

U.S. Customs and Border Protection has approved the start of direct flights between Puerto Rico's LMM International Airport and Cuba

American Airlines/Eagle

IDEO Other announcements

65


Puerto Rico is also the main homeport of the Caribbean

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Puerto Rico receives over 1.2 MM cruise passengers on a yearly basis • Puerto Rico is served by 15 cruise lines Carnival Celebrity Club Med Oceania Azamara

Holland America MSC Norwegian Princess P&O

Regent Royal Caribbean Seadream Yacht Club Silverseas Seabourn

• Puerto Rico is home to seven of the cruise lines

• The following cruise lines announced commencement in 2011-2012 • In calendar year 2010 had an increase in homeport passengers of 21.3% 449,670

2009

21.3%

545,395

2010 66


We have a detailed plan to expand our global presence and maximize our promotional efforts

RESTORE GROWTH GLOBAL INSERTION

Restructure Puerto Rico‟s promotional programs and reorganize Puerto Rico‟s offices abroad to assure its place in the global economy

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• Puerto Rico must assure its place in the global economy • Establish presence (representation) in jurisdictions with highly developed sectors important for Puerto Rico and aligned with the economic development strategy: − High-tech industries(IT, telecommunications and aerospace)

− Life sciences (pharmaceutical, biotechnology and medical devices) − Advanced services(financial, IT, engineering, design, research and development, health and entertainment) • Reestablish the External Trade Board do define public policy on export of goods and services • Establish a network of representatives in key jurisdictions to complete our offices and current representatives • Expand beyond our traditional focus in terms of global presence and trade relations with the Northeast corridor of the U.S. and Florida • Reinforce our presence in Europe and establish ourselves in East Asia • Establish alliances with local and international consortia to promote exports through trade treaties such as CAFTA-DR • Revise and expand curriculum of the Institute of External Trade and Entrepreneurial Development (ICEDE, for its Spanish acronym) 67


Government of Puerto Rico worldwide presence

RESTORE GROWTH GLOBAL INSERTION

We want to establish a network of representatives in target jurisdictions in order to complement our current office locations

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DDEC Offices Tourism Office PRIDCO Office Representatives Tourism Representatives Tourism Representatives 68


Focus on integrating with domestic clusters in the West Coast and the Southwest RESTORE GROWTH

GLOBAL INSERTION

A concerted strategy to de-emphasize our historical focus on establishing presence and commercial relations with the Northeast Corridor and Florida

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Pacific Northwest: • Aerospace • Defense

North California: • Information Technology

Southern California (SD): • Biosciences

Texas:

Historical Focus

• Medical Devices • Information Tech

Southern California (LA): • Entertainment Services

69


Looking to attract new international partners RESTORE GROWTH GLOBAL INSERTION

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Reinforce our European presence and establish a foothold in East Asia

UK:

• Finance • Insurance

East Asia: Germany and Switzerland:

• Pharmaceuticals • Manufacturing

Spain & France:

• Attract FDI from, and forge stronger commercial ties with, China, South Korea, Japan and Singapore

• Energy • Information Technology

70


Trade missions foster entrepreneurship, the export capacity of local companies and job creation

RESTORE GROWTH GLOBAL INSERTION

Promote international trade, strengthen export opportunities for products and services from local businesses and strengthen commercial ties

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• Trade Missions help local companies open markets, leverage opportunities in strategic industries, and expand U.S. trade relationships with our traditional trading partners, as well as in promising emerging global markets • Trade missions offer a proven cost-effective tool for helping local companies learn first-hand about global markets • A well-coordinated trade mission consists of: − A market analysis of place to visit − An analysis of the potential opportunities it represents to local companies • Given that it is our priority to drive our local companies to export, we must be facilitators and provide them with the needed resources so that they can be competitive and succeed in the global market • Trade missions have a multiplier effect in the economy of Puerto Rico since, not only are government relations strengthened, but the transactions achieved create jobs and more income to companies • These initiatives are aligned with the economic policy established in the SMNE since they make local companies more competitive and our economy more diversified 71


Over $119 MM in projected sales in Trade Missions from Jan. 2009 to May 2011

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Sales and Business Appointments during Trade Missions #

Tradeshow/Mission

Localization

Date

1 2

Federal Office Systems Expo Guatemala to Puerto Rico

Washinghton, DC San Juan, PR

3

Buyers from Dominican Republic

San Juan, PR

March 10-12, 2009 May 17-21, 2009 September 27 to October 1, 2009

4

International fair TradeOne 2009

Santiago, Chile

November 4-6, 2009

5

Belgium to Puerto Rico

San Juan, PR

6

Caribbean Home & Garden Expo

7

Feria Expocomer 2010

8

China Trade Fair

9

Summer Fancy Food 2010

10

Expo-Capac 2010

11

Multi-sector Trade Mission to Dominican Republic

12

Dominican Republic Reverted Mission

13

Expocomer 2011

Maho Bay, St. Martin Panama City, Panama

Number of participating Firms 4 6

Business Contacts/ Projected Sales Appointments 102 contacts 56 appointments 100 appointments

$500,000 n/a

4

50 contacts

$100,000

December 2-5, 2009

1

10 appointments

n/a

December 13-15, 2009

4

80 contacts

$168,311

March 3-6, 2010

20

Guangzhou, China April 15 to May 5, 2010

19

70 appointments

$925,000

$4,500,000

20

500 contacts

n/a

June 26-30, 2010 September 15-20, 2010

8

154 contacts

$6,800,000

7

37 appointments

$1,460,000

October 13-14, 2010

40

100 appointments

$100,000,000

San Juan, PR

October 17-21, 2010

12

81 appointments

n/a

Panama City, Panama

March 23-26, 2011

14

New York, NY Panama City, Panama Santo Domingo, Dominican Republic

TOTAL

159

100 appointments 1440

$4,986,000 $119,439,311 72


We have an aggressive calendar of trade missions to boost the export of goods and services

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Proposed trade mission dfor Calebnday year 2011 and 2012 #

Tradeshow/ Mission

Localizzation

Date

Projected Sales

1

Fancy Food

Washington, DC

July10-12, 2011

$4,000,000

2

ExpoCapac 2011

Panama

September 14-18, 2011

$1,500,000

3

Trade Mission Costa Rica

Costa Rica

October 2011

$400,000

4

COFAIR 2011

Beijing, China

November 8-9, 2011

N/A

5

Americas Food and Beverage

Florida

November 14-15, 2011

$1,500,000

6

PowerGen (US Commerce)

Las Vegas

December 13- 15, 2011

$500,000

7

International Builder's Show

Orlando, Florida

February 08-11, 2012

$1,500,000

8

Trade Mission RD

Dominican Republic

February 2012

$250,000

9

Expocomer 2012

Panama

March 21-24, 2012

$4,000,000

10

Food Marketing Institute

Dallas, Texas

May 1-3, 2012

$1,200,000

11

Trade Mission Peru

Peru

May 2012

$1,000,000

12

Trade Mission Trinidad and Tobago

Trinidad and Tobago

May 2012

$500,000

13

Trade Mission Guatemala / El Salvador

Guatemala/ El Salvador

June 2012

$1,000,000

14

ExpoCapac 2012

Panama

September 2012

$1,500,000

15

Trade Mission Spain

Spain

September 2012

$3,000,000

Mexico

October 2012

$1,000,000

16 Trade Mission Guadalajara y Monterrey, Mexico

TOTAL

$22,850,000 73


The Federal Government offers great opportunities to small and medium sized business to innovate and grow

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Insert companies with operations in Puerto Rico more effectively in the United States Federal procurement market

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• The U.S. federal Government is the largest consumer of goods and services in the world exceeding $400 billion in purchases since 2006 • In fiscal year 2009 the Federal Government established contracts for a whopping $538 billion • Firms operating in Puerto Rico currently account for $890 MM or just 0.165% of the estimated $538 billion federal market. Of this amount, a smaller percentage was awarded to Puerto Rican companies • To proactively position businesses in the federal government market while actively assisting and matchmaking companies with federal contracts available, the DEDC created the Federal Contracting Center: − The Center‟s goal is to generate employment and improve the general economy of Puerto Rico by assisting business firms to obtain and perform under federal state, and municipal government contracts − The Center‟s vision is to become Puerto Rico‟s gateway for federal contracting opportunities by doubling participation in federal contracts to $1.8 billion by 2015

74


The Puerto Rico Federal Contracting Center‟s (FeCC) mission is to proactively position businesses in the federal government market

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Click toRico edit Master textCenter styles Puerto Federal Contracting Description:

• The Puerto Rico Federal Contracting Center (FeCC), previously known as the Procurement Technical Assistance Center (PTAC), is a division of the Puerto Rico Industrial Development Company (PRIDCO). • The FeCC is part of a nationwide network of Procurement Technical Assistance Centers that helps small businesses obtain government contracts with the Department of Defense, other federal agencies, state and federal prime contractors

Results:

• The FeCC officially began operating on February 2011 • In FY 2011, the FeCC coordinated two trade missions to Washington DC with the participation of 8 local companies • 3 clusters were created including: Information technology, textiles and meta and electronic components • Federal contracts currently generate 18,500 direct jobs, number that can exceed 20,000 is the established goal that local companies reach $1 billion in federal contracts is achieved • In August 2011 the FeCC will be hosting the Puerto Rico Federal Contracting Center Conference & Expo creating the perfect place to network with government agencies, prime contractors, and other small businesses 75


The Federal Procurement Market presents many opportunities for Puerto Rico

RESTORE GROWTH GLOBAL INSERTION

The PR Procurement Technical Assistance Center (PR PTAC*) actively helps companies with operations in PR to obtain federal contracts

Click to edit Master text styles

PR PTAC achievements for Calendar Year 2009 • • •

Contracts (#): 78 Contracts ($): $62.6 MM awarded to PTAC clients Employment: 1,252 jobs were created or retained

Top Products and Services Sold

Total in $

Clothing, special purpose

$341 MM

Construction - Dams

$46 MM

Construction

$43 MM

Construction

$39 MM

Construction

$38 MM

Other

$383 MM

Total Federal Contracts ($) awarded in PR

$890 MM (0.2%)

The Federal Government in FY 2009 awarded $538 billion in contracts Source: www.USASpending.Gov and Puerto Rico PTAC Calendar Year 2009 Report

76


Long-term growth measures to achieve sustainable economic development in a diversity of sectors Transition to a Knowledge Based Economy Human Capital

RESTORE GROWTH

Leverage the industrial base to create new jobs and businesses by creating new clusters and Initiatives consortia with a focus onManufacturing innovation

Click to edit Master text styles

• Objective: Develop the knowledge and skills of the labor force through scolarization, continuous formation and experience to achieve a labor force that is prepared to boost a knowledge based economy

Science, Technology and Research Trust

• Objective: Promote economic development of Puerto Rico through science and technology with the participation of leaders of the Government, Academia and private sector

Intellectual Property

• Objective: Promote the development and protection of intellectual property in Puerto Rico to favor the creation and retention of knowledge and wealth

Comercio Entrepreneurship

• Objective: Implement programs that foster entrepreneurship and innovation and assists high potential entrepreneurs to elevate the dynamism of the economy for the socio-economic betterment of Puerto Rico

Venture Capital Funds

• Objective: Activate the local financial sector increasing financing options, to offer financing alternatives and support to high potential entrepreneurs

Clusters

• Objective: Establish alliances with the private sector and academia to strengthen and promote the formation of clusters 77


Long-term growth measures to achieve sustainable economic development in a diversity of sectors Transition to a Knowledge based Economy

Objective: •

RESTORE GROWTH KNOWLEDGE

Leverage the industrial base to create new jobs and businesses by creating new clusters and Initiatives consortia with a focus onManufacturing innovation

Click to edit Master text styles

To accelerate the transition to a knowledge-based and innovation economy, focused mainly on the development of human capital and intellectual property

• To foster capital investment in diverse areas of high growth potential Strategies / Initiatives: •

Enable the Puerto Rico Science and Technology Trust to: – Establish a district of excellence in science and technology (Science City) – Establish a technology transfer office to help expedite the commercialization of innovations produced by all of our research institutions

• Promote the adoption of a KBE public policy that will enable key commercial research activities • Strengthen clusters and supporting consortia that focus on innovation • Increase the amount of public and private capital available to invest in R&D activities by fostering the creation of private risk capital funds that invest in businesses focused on science and technology

• Develop and modernize the broadband internet infrastructure in all the regions of the Island and promote its adoption 78


Our highly skilled workforce is our greatest competitive advantage

RESTORE GROWTH KNOWLEDGE

Click to edit Master text styles

Highly skilled, highly educated, low cost and bilingual workforce • Over 100 academic centers

• 33,000 college degrees awarded annually

Assets

• 12,000 degrees in science, engineering and technology awarded annually • UPR Mayagüez Campus and Polytechnic University of Puerto Rico Engineering Schools are among the top 20 engineering schools in the U.S. based on volume of enrollment • Researchers at Puerto Rican universities and research centers have access to federal research funding from such agencies as NSF, NIH, NCI, NOAA, NASA, and others

• The Workforce Investment Act includes incentives such as: − Up to 50% of the salary of participants of on-the-job training

Incentives

− Up to 50% of the salary of participants in customized training − 100% of training costs and up to 50% of the participants salary for combined training programs − 100% of the costs of retraining employees to handle new tasks and up to 50% of the salary of the participant during the retraining period 79


Our highly skilled workforce is our greatest competitive advantage Human Resource

Results:

RESTORE GROWTH KNOWLEDGE

World class academic institutions produce a highly skilled, highly educated and bilingual workforce

Click to edit Master text styles Manufacturing Initiatives

• According to the prestigious Ibero-American Ranking SIR 2010 the University of Puerto Rico (UPR) obtained the 34th place of a total of 607 Higher Education Institutions in Ibero-America and the 15th position of 489 in ranking for most scientific research in Latin America and the Caribbean • Interdisciplinary group of professors of the UPR Mayaguez Campus obtained a $5MM subvention for their proposal titled: RISE 2 BEST: RISE Enhancing Biomedical Sciences and Biomedical Engineering in Science and Technology • A group of researchers received $27MM from the National Science Foundation (NSF) and the UPR to promote and give ongoing support to the Institute for Functional Nanomaterials (IFN)

80


Promote the commercialization of Puerto Rican innovation

RESTORE GROWTH KNOWLEDGE

Promote a proportioned environment for research in science and technology

Click to edit Master text styles

Research

+ Capital to attract research +Necessary Resources (including incentives under Law No.. 73)

+ Identify potential + Facilitate commercialization of intellectual property

• • •

Commercial market

Innovation

Commercialization

+ Develop practical applications + Identify sources of capital

$

The Government Ethics Office emitted an opinion to eliminate technology transfer barriers Approved Act No. 150 of 2010 which facilitates the commercialization of research for UPR professors The Puerto Rico Science, Technology & Research Trust („Trust‟) invested $5.9 MM in the UPR Molecular Sciences building The „Trust‟ has attracted 4 new world class researchers to conduct high level research in the island 81


PREES* is acelerating the private sector to take leadership in being the economic engine

RESTORE GROWTH KNOWLEDGE

PREES was created to implement innovative programs and PREES was created to implement innovative programs and policies for accelerating high accelerate potential high potential entrepreneurshipbusinesses

Click to edit Master text styles

Private Sector  11 sponsors from diverse industries Private Sector Providing knowledge, and ¥ 11advice Sponsors from diffe rent ind ustries networking to foment the growth of high potential business initiativesexpertise, ¥ Contributing advice and connections to foster growth of high potential entrepreneurial ventures

PREES

Public Sector

 Babson provides PREES - Babson world class knowledge, ¥ Babsopractices, n provides world class best global expertise , best practices, global networking and connections and resources resources

Public Sector Match funds with the Private Sector • Matching funds from Private Sector Associate to the Private Sector • Partnering with Privateacting as a and academia Sector and academia facilitator, advisor and information acting as facilitator, provider advisor, and information

Babson = = Babson

Q u ic k T im e ™ a n d a dec o m pr es s or ar e n e e d e d t o s e e t h is p ic t u r e .

provider

Develop a sustainable model for high potential businesses that can grow at an accelerated rate  Develop a sustainable, comprehensive model for high potential Based on 3 principles:

entrepreneurs to emerge and grow at an accelerated rate

Implementation of 4 themes:

1) Pilot for high potential businesses. 1) Short term practical objectives with an 2) Pilot for internet navigation of Puerto Ricans that ambitious long term vision Entrepreneurship is a key driv er of economic growth are capable of providing new businesses access 2) Research with focus on action to clients, capital, among other resources 3) Business thinking and implementation, with 3) Introduce successful program practices to emphasis on innovation and continuity promote high caliber business spirit 4) Develop a long term strategy and a plan to develop a solid economic base *PREES: Puerto Rico Entrepreneurship Ecosystem

82


Long-term growth strategies are focused on increasing exports and the development of RESTORE GROWTH KNOWLEDGE local intellectual property

Click to edit Master text styles Value Chain Integration and Clusters • Strengthen the entrepreneurship ecosystem and establish the mechanisms to facilitate technology transfer from academia to commercial • Develop the R&D infrastructure such as broadband internet

Transition to a Knowledge Based Economy

• Expanding promotional strategies for non-taxincentive driven prospects • Establishing alliances with the private and academic sectors to promote supply chain integration and the formation of clusters

• Re-organize the external commercial offices • Establish a presence in jurisdictions associated with the economic development plan • Maximize the use of resources of the US Commercial Service and the World Trade Center

Integration into the Global Economy

83


Re-focus a promotion strategy of clusters that complement diverse sectors

RESTORE GROWTH KNOWLEDGE

BASED IN CLUSTERS Click to edit MasterPROMOTION text styles

PROMOTION BASED IN SECTORS •

Homegeneous Groups and with similiar positions in the supply chain

Diverse groups with complementary positions in the supply chain

Resistence to cooperation among competitors

Focus on final products and particular activities

Includes clients, suppliers, service providers and specialized institutions

Search for synergies and new combinations

The relation with the government is principally transactional based in subsidies

Emphasis on productivity, competitiveness and innovation

Promotions orientated to the cluster needs and in complementing empty spaces in the supply chain

Limits in the type of available promotions (“one-size-fits-all”)

84


The strategic model includes promoting strategic sectors, emphasizing competitiveness and sustainable growth

RESTORE GROWTH STRATEGIC SECTORS

Click to edit Master text styles

Focus on strategic sectors that will enhance production capacity Manufacturing

Agriculture

Tourism and Entertainment

• Objective: To retain, expand and diversify the industrial base and attract manufacturing of high-value products based on R&D and cutting-edge technology • Objective: To develop an entrepreneurial and hard working culture based on quality and competitiveness, and to maximize the yield of high potential agricultural soils • Objective: To develop new and attractive offers to retain and attract new tourist segments to the destination

Commerce and Comercio Trade

• Objective: To foster entrepreneurship and improve the value proposition for the consumer by emphasizing diversification and competition

Banking, Insurance, and Credit Unions

• Objective: To promote a strong and healthy financial system to facilitate the efficient flow of capital in the economy

Film and Creative Services

• Objective: To develop a film and creative services industry that creates new jobs and is financially viable in the long-term 85


Puerto Rico‟s Strategic Sectors RESTORE GROWTH STRATEGIC SECTORS

Click to editManufacturing Master text styles • 11 out of the top 20 blockbuster drugs sold in the US are manufactured in Puerto Rico • More than 50% of the World‟s leading pharmaceutical companies have operations in Puerto Rico

Assets

• 3rd jurisdiction with highest volume in the biotechnological sector (per capita basis) • 5th jurisdiction with the highest volume in the pharma sector (per capita basis) • 7th jurisdiction with highest volume in the medical device sector (per capita basis) • 5th largest manufacturing location in the World • 13 out of the top 16 medical device companies have presence in Puerto Rico Economic Incentives for the Development of Puerto Rico Act (Act 73 of 2008) • 4% income tax on industrial development income • 0% a 1% tax rate on income for pioneer or novel products manufactured in PR • 50% tax credit on purchases of products manufactured or recycled locally

Incentives

• $5,000 for each job created during 1st yr of operation • 50% tax credit on Research and Development activities • $5,000 tax credit per employment • Special deductions on investments from structures, machinery and equipment 86


Promote all Strategic Sectors RESTORE GROWTH STRATEGIC SECTORS

Manufacturing

To retain, expand and diversify the industrial base and attract manufacturing of high-value Initiatives products based on R&D Manufacturing and cutting-edge technology

Click to edit Master text styles

Initiatives: • Reduce the operational cost of manufacturing by implementing the different reforms (permits, energy, tax, and labor) and the development of the necessary infrastructure improvements and industrial parks • Secure the competitive tax advantages of Puerto Rico in light of the federal public policy over Controlled Foreign Corporations (“CFCs”) • Refocus the promotional strategy and mechanisms in these areas: – Focus on the promotion of the new areas of the Industrial Incentives Act (Act No. 73 of 2008) such as R&D, supply chains, export services, strategic projects, etc

– Emphasize the promotion of the major clusters or groups of companies, filling the gaps that may exist in the value chains or in complementary service areas – Develop programs focused on reducing operational costs and access to investment capital such as the offering of special reduced electricity rates • Implement and promote the Industrial Incentives Law (Act No. 73 of 2008) through the approval and publication of regulations for its effective application • Strengthen and promote companies in supply chain 87


Promote all Strategic Sectors RESTORE GROWTH STRATEGIC SECTORS

Manufacturing

Results:

To retain, expand and diversify the industrial base and attract manufacturing of high-value Initiatives products based on R&D Manufacturing and cutting-edge technology

Click to edit Master text styles

• Since January 2009 there have been 164 projects promoted of 135 companies with a commitment to create or retain 10,173 jobs and an investment of $432 MM in machinery and equipment – In calendar year 2009 

69 promotions

Job commitment of 3,389

Investment of $174 MM in machinery and equipment

– In calendar year 2010 

75 promotions

Job commitment of 5,176

Investment of $166 MM in machinery and equipment

– In the first quarter of 2011 

20 promotions were completed with a

Job commitment of 1,608

Investment of $92 MM in machinery and equipment 88


Promote all Strategic Sectors RESTORE GROWTH STRATEGIC SECTORS

Manufacturing

Results:

To retain, expand and diversify the industrial base and attract manufacturing of high-value Initiatives products based on R&D Manufacturing and cutting-edge technology

Click to edit Master text styles

• Some of the promotions in 2011 include: – Cervezera del Sur will begin operations in summer 2011 with an investment of $20 MM and creating 40 jobs – GoldPack of Puerto Rico invested $1.2 MM in Yabucoa and committed to creating 10 direct jobs in 18 months, 10 additional jobs during the second phase of operation and 69 jobs long-term – Sartorius Stedim Biotech announced an expansion with an investment of $20 MM in its Yauco plant that will create 80 jobs in the construction phase and 87 permanent jobs and is contemplating opening an R&D center in Puerto Rico – Promed Molded Products will invest $5.4 MM in Puerto Rico, creating 143 new jobs in its Dorado plant – Blu Caribe is expanding its pharmaceutical operation in Dorado with a $4 MMinvestment and the creation of 120 new job – Legacy Pharmaceuticals is investing $34 MM into its Humacao plant with the investment expected to create some 300 new jobs in the eastern region – C-Axis Puerto Rico Inc. is expanding its medical-device components line in Caguas, a $2.8 million investment within the next two years that is expected to add 32 jobs 89


New promotions in the manufacturing sector are showing signs of improvement in the sector

RESTORE GROWTH STRATEGIC SECTORS

Click to editManufacturing Master text styles PRIDCO Promotions

(Payroll Commitment first half of the FY in MM of $)

70

$40 $35

$35

$31

60.6

55

55.1

53.8

51.1

50

$20

$15

55.1 50.5

50.8

49.1

45.7

45

51.1

51.4 49.2

40

$10

Apr-11

Mar-11

Feb-11

Jan-11

Dec-10

2011

Nov-10

2010

Oct-10

2009

Sep-10

$-

Aug-10

30

Jul-10

$5

Jun-10

35 May-10

$20

65

60

$30 $25

Purchasing Managers Index (PRM-PMI)

• Since 2009, PRIDCO has completed 164 promotions for 135 companies, with an investment commitment of over $431 MM and a job commitment of 10,173 jobs • PRIDCO has assigned $30 MM in cash grants for job creation and infrastructure investments • The PRM-PMI has remained above 50 for 9 of the past 12 months suggesting an expansion in the manufacturing sector Source: PRIDCO / PR Institute of Statistics *FEDE for its Spanish acronym – Fondo Especial de Desarrollo Económico

90


Puerto Rico‟s Strategic Sectors RESTORE GROWTH STRATEGIC SECTORS

Click to editAgriculture Master text styles • Puerto Rico‟s agriculture sector generates almost $822 MM each year, 50% of which constitutes live stock • 9 of the largest seed production companies in the world have operations in Puerto Rico

Assets

• Puerto Rico has the only year round mango producing farm; exporting its products to US, Europe, and Canada • Puerto Rico is considered to have the most attractive tax credits for agriculture in the Americas

Incentives

• Bona fide farmers qualify for the following tax benefits − 100% exemption on taxes for agricultural equipment − 100% exemption on property taxes (land, buildings, vehicles, etc.) − 100% exemption on municipal taxes − 100% exemption on stamp payments to PR‟s Treasury Department and fees to register a property − 90% exemption on contribution of earnings from an agriculture activity − 50% tax credit for investment in eligible agricultural business • Annual bonus for agricultural workers • Wage subsidy program to eligible farmers 91


Promote all Strategic Sectors RESTORE GROWTH STRATEGIC SECTORS

Agriculture

To develop an entrepreneurial and productive culture based on quality and Initiatives competitiveness, and toManufacturing maximize the yield of high potential agricultural soils

Click to edit Master text styles

Initiatives: • Reorganize and integrate the Department for Agriculture, the Administration of Agricultural Development and Services, the Agricultural Insurance Corporation, and the Rural Development Corporation • Establish the “Manos pa‟l Campo” program which will identify, encourage and provide viable alternatives to the lack of manpower during peak seasons • Revitalize the poultry industry by injecting capital into companies involved in this production • Focus on Quality Drivers to boost agricultural production in specialty market areas (coffee, eggs, and fruits)

• File the necessary legislative measures for the creation of agricultural corridors to protect lands with high agricultural value • Create a mitigation bank to facilitate the process of preserving the conservation of soils of high agricultural / ecological value • Refocus and redefine the promotional efforts and the granting of incentives to maximize the economic return on government investment • Recapitalize the Agriculture Development Fund (FIDA, by its Spanish acronym) 92


Promote all Strategic Sectors RESTORE GROWTH STRATEGIC SECTORS

Agriculture

Results:

To develop an entrepreneurial and productive culture based on quality and Initiatives competitiveness, and toManufacturing maximize the yield of high potential agricultural soils

Click to edit Master text styles

• Canto Alegre with only one month since its opening, already produced 160,000 chickens on a weekly basis and generates 250 direct jobs and 750 indirect jobs, thanks to $14 MM in financing and the contribution of $1.8 MM in WIA funds • Pioneer Hi-Bred, the bio-agricultural company opened an R&D laboratory in Salinas with the help of the government of $600,000 for infrastructure and $400,000 for training. The company invested $6MM and created 100 jobs • $200,000 have been allocated from local and federal funds for projects directed to increase competitiveness of marketing of agricultural products of Puerto Rico • $62 MM in subsidies and incentives have been awarded in FY 2010 in addition to $64 MM awarded in FY 2009 • $72 MM in subsidies and incentives expected for FY 2011 • 31 projects were awarded for permanent works in rural zones amounting to $996,309 • $1.13 MM have been allotted for investment in infrastructure development for irrigation, drainage and water storage in the South, Southwest and Southeast of Puerto Rico 93


New agriculture investments in innovative industries

RESTORE GROWTH STRATEGIC SECTORS

Click to editAgriculture Master text styles Seed Production Gross Income

Investment in Infrastructure

(Fiscal Year in MM of $)

$36

+15.7%

$35

$18 $35

YOY

$34

(Fiscal Year in MM of $)

$32

$10

2010

$9.70

$8

$30

$6

$29

$4

$28

$2

$27

$-

2009

2009

$14 $12

$30

$16.75

$16

$33 $31

$16.75

2010

2008

• Pioneer Hi-Bred is set to open a R&D laboratory with the help of the government of $600,000 for infrastructure and $400,000 for training. The company will invest $6.3 MM and create 115 jobs • Since June 2009, $33.5 MM have been approved in infrastructure development investments for irrigation, agricultural equipment and buildings, and renewable energy generation, for a total investment of $67 MM 94


Puerto Rico‟s Strategic Sectors RESTORE GROWTH STRATEGIC SECTORS

Click toTourism edit and Master text styles Entertainment

Assets

20% market share of US inbound seats to the Caribbean 19% market share of all Caribbean arrivals, with more than 5MM passengers per year Main cruise homeport in the Caribbean, with close to 1.2 MM cruise passengers per year Largest and most technologically advanced Convention Center in the Caribbean One of only two W Retreat and Spa in the World is found in Vieques Island, Puerto Rico Only tropical rain forest in the US National Forest system and nominated as one of the next New Seven Wonders of the World • 3 out of the 7 bioluminescent bays in the World are located in Puerto Rico • Second longest canopy in the World, found in the Nature Adventure Park Toro Verde • San Juan is the oldest city in the US • • • • • •

Tourism and Entertainment

Incentives

Puerto Rico Tourism Development Act (Law 74 of 2010) • 10 year exemption from various taxes with the possibility of 10 additional years: − 90% exemption on income and property taxes − 100% exemption on licenses and taxes from municipal construction and excise tax − 50% tax credit of equity invested (including land) by a developer, up to a maximum of 10% of the total investment Other incentives • Funds that offer direct loans and guarantees for new hotel development projects • 10% reimbursements to cruise ships that make purchases locally • 5% reimbursements to cruise ships that purchase goods/services manufactured locally • 11% discount in electricity bill for eligible hotels 95


Promote all Strategic Sectors RESTORE GROWTH STRATEGIC SECTORS

Tourism and Entertainment

To develop new and attractive offers to retain and attract new tourist segments to the destination

Click to edit Master text styles Manufacturing Initiatives

Initiatives: • File the required legislative measures to improve the competitiveness of the destination, including a review of the organic law of the Tourism Company and measures to promote nautical tourism and the development of condo-hotels • Develop a uniform brand that projects Puerto Rico as an ideal place to visit, do business and live ("Branding") • Expand air and sea access by attract new airlines and promoting Puerto Rico as a homeport for cruise ships • Promote the “Coliseo de Puerto Rico” and the Convention Center in order to position Puerto Rico as a destination for world class performance events • Promote and develop medical tourism through partnerships with health care providers, insurance companies and hotels • Recapitalize the Tourism Development Fund and the Hotel Development Corporation to facilitate investment in tourism infrastructure and complete projects already underway • Develop a quality and consistency of service educational program to improve the visitor experience by creating a more service-oriented culture 96


Promote all Strategic Sectors RESTORE GROWTH STRATEGIC SECTORS

Tourism and Entertainment

Results:

To develop new and attractive offers to retain and attract new tourist segments to the destination

Click to edit Master text styles Manufacturing Initiatives

• In this administrations 22 months, important tourist complexes have been developed to diversify our product. These development represent close to 630 rooms, an investment of $750 MM and 4,500 direct and indirect jobs in the hotel industry • Inaugurated the W Vieques Retreat, the Sheraton Convention Center, and the Ecotourist Park Toro Verde, all summing up to an investment of $350 MM and the creation of over 1,000 jobs • New developments have started such as the St. Regis Bahía Beach Resort in Rio Grande, Ritz Reserve in Dorado and the Block in Vieques all representing over $500MM • The Latin Billboard and Mayaguez 2010 injected over $100 MM in the local economy and promoted Puerto Rico on an international level • Act No.127 of 2010 was approved to promote Puerto Rico as an idela destiny for weedings and honeymooners • Attracted over 250 additional weekly flights, that represent 500,000 seats a year; we now have 12 MM seats annually

• For FY10 homeport passengers were at its highest point in five years reaching 530,000 passengers • The new london flight produced over 6,300 room nights 97


The tourism industry already left the recession behind and is enjoying the beginning of a recovery

RESTORE GROWTH STRATEGIC SECTORS

Click toTourism edit and Master Entertainment text styles Hotel Occupancy Rate

(First five months of Calendar Year)

Average Daily Rate

(First five months of Calendar Year)

77.1%

+3.8%

+0.2%

YOY

$161.59

YOY

$161.86

74.2%

2010

2011

2010

2011

• The opening of new hotels such as the W Vieques Retreat Hotel, the Sheraton Convention Center, the St. Regis at Bahía Beach, among others, represent a combined investment of $765 MM and the creation of 8,032 jobs in the construction phase and 1,600 permanent jobs • For the next two years 30 additional hotel projects are planned to open with an estimated investment of over $1,344 MM and the creation of 3,450 permanent jobs in the operation stage Source: PR Tourism Company

98


Growth in air access and cruise ship passengers remains strong

RESTORE GROWTH STRATEGIC SECTORS

Click toTourism edit and Master Entertainment text styles Airline Passenger Movement

Homeport Passenger Movement

(Calendar Year / Year over Year Change) 11,000,000 10,626,058 10,500,000

+4.2% YOY

(Calendar Year / Year over Year Change)

6% 4.19%

4% 2% 0% -2%

10,000,000

9,745,377

-4% -6%

9,500,000

9,337,268

-8%

-9.14%

-10%

9,000,000

-12% -13.80%

-16%

2009

500,000

2010

+21.3%

545,395

YOY

417,254

25%

21.29% 449,670

20%

400,000

15% 300,000 10% 200,000

7.77% 5%

100,000

-14%

8,500,000

2008

600,000

-

0.03%

2008

0%

2009

2010

• Over 250 additional weekly flights since 2009, including flights to some of Europe's busiest markets: Madrid, London and Frankfurt • New cruise ships have been attracted, including: Disney Cruise lines, Holland America, Celebrity Cruises, Silverseas, and American Ferries • For CY2010 homeport passengers were at its highest point in five years reaching 545,000 Source: PR Tourism Company

99


Puerto Rico offers an increasing variety of hotels Hotel

RESTORE GROWTH STRATEGIC SECTORS

Click to edit Master text styles Description Sheraton Convention Center • Location: San Juan • 503 rooms including 22 suites • 4 star hotel

Sheraton Convention Center:

• Total investment: $211 MM • Jobs: 900 direct and indirect jobs during construction phase and 452 permanent jobs • The first hotel in Puerto Rico with more than 500 rooms built in over a decade • Received the “Four Diamond Award” given by the AAA Rating System to the best hotels in North America • Grand opening: November 2009

W Retreat & Spa

• Location: Vieques • 156 rooms including 6 WOW suites

W Retreat & Spa:

• 4 star hotel • Total investment: $142 MM • Jobs: 450 direct and indirect jobs during construction phase and 250 permanent jobs • It is the first W Retreat & Spa hotel that established itself in the Western Hemisphere • Grand opening: March 2010 100


Puerto Rico offers an increasing variety of hotels Hotel

RESTORE GROWTH STRATEGIC SECTORS

Click to edit Master text styles Description St. Regis Bahía Beach • Location: Rio Grande • 139 rooms • 5 star hotel • Total investment: $170 MM

St. Regis Bahía Beach:

• Jobs: 1,200 direct and indirect jobs during construction phase and 250 permanent jobs • Only hotel in the Caribbean that has received the "Gold Signature Sanctuary« certification given by Audubon International

• Associated with the world-renowned chef Jean-Georges Vongerichten for the development of its main restaurant “Fern”

Dorado Beach

• Grand opening: November 2010 • Location: Dorado

• 241 rooms including a Villa with four rooms • 6 star hotel

Dorado Beach:

• Total investment: $342 MM • Jobs: 3,500 direct and indirect jobs during construction phase and 876 permanent jobs • Will become the second Ritz-Carlton Reserve in the world and the first in the Americas • Grand opening: Winter 2012 101


Puerto Rico receives prestigious recognitions

RESTORE GROWTH STRATEGIC SECTORS

Click to edit Master text styles

Puerto Rico obtained the top spot in Fodor’s top 10 destinations in the Caribbean

Puerto Rico in the 3rd position among the top 10 destinations to spend Christmas 2010

• 2 hotels in Puerto Rico were included in the Gold List 2011 • Vieques is in the 8th position among the top 10 best islands in the Atlantic

102


Puerto Rico‟s Strategic Sectors RESTORE GROWTH STRATEGIC SECTORS

Click to edit Master text styles Commerce and Trade • Puerto Rico exports over $60 billion a year, most of which includes: medical devices, pharmaceutical and chemical products, and electronics and computer equipment • Puerto Rico is the 5th largest exporter in Latin America

Assets

• Main trading partners include: US, Germany, Netherlands, Belgium, and Spain • Retail sales exceed $34 billion a year • Estimated 28 MM square feet of shopping center space • Plaza las Américas is the largest shopping mall in Latin America, and has the highest grossing stores in the world for Radio Shack, Puma, and Borders

Incentives

Foreign Trade Zone: San Juan, Ponce and Mayagüez • Benefits from federal customs duties, excise taxes, and municipal taxes • 100% exemption on tangible property and equipment used • 60% exemption on the value of the property that is designated intangible • 100% exemption on exports from the zone and sub-zones Purchase of local and recycled products: • Up to 50% tax credits for the purchase of local and recycled products Puerto Rico Trade Company: • Foreign Trade and Business Development Institute (ICEDE, for it‟s acronym in Spanish) • Facilities for distribution and commercial use • License to operate the Puerto Rico World Trade Center 103


Promote all Strategic Sectors RESTORE GROWTH STRATEGIC SECTORS

Commerce and Trade

To foster entrepreneurship and improve the value proposition for the consumer by Manufacturing emphasizing diversification and competition Initiatives

Click to edit Master text styles

Initiatives: • Position Puerto Rico as the transportation and logistics hub of the region by transforming and modernizing the air and sea port facilities • Support training programs and training support networks for SMBs such as the Economic Development Bank‟s “Movimiento Empresarial”

• Maximize the development and promotion of the Free Trade Zones as a promotional tool for incentivizing value-added exports • Increase the membership and fully utilize the informational resources and market channels provided by the World Trade Center franchise • Transfer the Mandatory Merchants Registry to the State Department to simplify the procedures required to open a business and improve the quality of statistical information • Strengthen the relationship with the various branches of the US Department of Commerce and maximize opportunities such as: – Technical assistance and logistical support in international export markets through improved access to the US Commercial Service – Financial assistance through the Economic Development Administration (EDA) development of business activities in regions with special needs 104


Promote all Strategic Sectors RESTORE GROWTH STRATEGIC SECTORS

Commerce and Trade

Results:

To foster entrepreneurship and improve the value proposition for the consumer by Manufacturing emphasizing diversification and competition Initiatives

Click to edit Master text styles

• Act No. 143 of 2009 known as "Regulation of Operation of Commercial Establishment" was amended to extend the opening hours of commercial establishments and establish a new minimum salary for firms that open Sundays • 12,373 potential business owners have received services from the Business Development Center of the Trade Company in calendar year 2010 so far, compared to 11,582 for calendar year 2009 • Wal-Mart and Sam‟s Club announced the opening of new establishments in Barceloneta with an investment of $55 MM and the creation of 600 jobs. Furthermore, a Sam‟s Club is being built in Kennedy Avenue with an investment of $46 MM and the creation of 700 jobs • CVS, the biggest pharmacy chain in the US, has already inaugurated 6 stores throughout the island and expects to open additional stores in the coming months • Wal-Mart will created 1,000 jobs thanks to $3.3 MM in WIA funds • Ashley Furniture Homestores will increase its number of stores in Puerto Rico for a total of 9 creating up to 160 jobs in a period of three years • 256 new members to the Puerto Rico World Trade Center (PRWTC) were brought • T.J. Maxx opened two stores on November 2010, in Guaynabo and Hatillo 105


Consumer confidence has started to improve

RESTORE GROWTH STRATEGIC SECTORS

Click to edit Commerce Master and Trade text styles Retail Sales

(Calendar Year / YoY change)

$34,139

+1.54%

Auto Sales

(Calendar Year / YoY change)

$34,665

+17.3%

YOY

YOY

87,745

76,477

2009

2010

2009

2010

• Approved Act No. 143 of 2009 known as "Regulation of Operation of Commercial Establishments" which extends the opening hours of commercial establishments and establish a new minimum salary for stores that open on Sundays • Wal-Mart and Sam‟s Club announced the opening of new establishments with $101 MM of investment and the creation of 1,300 jobs Source: PR Trade Company

106


The most recent trade data show a sustained recovery in foreign trade

RESTORE GROWTH STRATEGIC SECTORS

Click to edit Commerce Master and Trade text styles Exports

Imports

(Calendar Year in billions of $) $75

+14.8%

$70 8.43%

$60 $55

8.15%

$47

$35 $30

$64

3.49%

14.78%

$60

$59 4.23%

$43

$40

$63

$56 $55 $57

$51

$50 $45

10.22%

20%

$55

15%

$50

$69

YOY

14.30%

$65

(Calendar Year in billions of $)

10%

YOY

5%

1.99%

0%

-1.47% -6.39%

20% 17.60%

$45

$42

$40 5.31%

25%

+3.3%

$35 $30

-5%

$25

-10%

$20

$37 10.09%

$38

2.76% 1.40% $28 $28

$31

3.97%

$44

$45

$43 $40

$41

9.53% 4.65% 3.28%

2.41%

15% 10% 5% 0%

-3.33% -7.62%

-5% -10%

• Since 2009 the DEDC, in collaboration with the PR Trade Company, has participated in 13 Trade Missions with total sales exceeding $119 MM • 256 new members have been added to the Puerto Rico World Trade Center • 1-3Q exports increased by 6.15% while in the 4Q it increased by 41.46% compared to 2009 • 1-3Q imports increase by 3.15% while in the 4Q it increased by 3.66% compared to 2009 Source: PR Planning Board

107


Puerto Rico‟s Strategic Sectors RESTORE GROWTH STRATEGIC SECTORS

ClickBanking, to edit Master textUnion styles Insurance and Credit • As of December 31st, 2010 there are 7 retail banks with over 440 branches • Puerto Rico commercial banks have deposits of over $48 billion • Brokerage firms have over $31.7 billion in assets under management

Assets

• There are 33 international banking entities in Puerto Rico • Citibank‟s Trust Department for Latin America is located in Puerto Rico • Puerto Rico is the 3rd largest insurance sector in Latin America • Credit Unions have deposits of almost $5 billion

• The Economic Development Bank provides direct loans and guaranties to Small and Medium Businesses up to $5MM

Incentives

• International Banking Entities (IBEs) and International Insurers: 5% tax rate on income and 0% taxes on property and municipal patents

• International Banking Entities (IBEs) and International Insurers: 0% tax rate on distribution of dividends, interests, profits, and distribution of liquidation to individuals, partnerships, corporations and non-resident foreign shareholders,

108


Promote all Strategic Sectors RESTORE GROWTH STRATEGIC SECTORS

Banking, Insurance, and Credit Unions

To promote a strong and healthy financial system to facilitate the efficient flow of capital in the economy

Click to edit Master text styles Manufacturing Initiatives

Initiatives: • Take advantage of the export services incentives of Act No. 73 of 2008 to develop the export capacity of financial and insurance service professionals • Maximize the resources of the Puerto Rico Housing Finance Authority and Economic Development Bank as a viable alternative to commercial banks through the Local Economic Stimulus Plan • Transfer the promotional arm of the International Insurance Center to the Department of Economic Development and Commerce • Encourage the development of cooperatives as business ventures in various sectors such as manufacturing, agriculture, services, among others • Work with the Federal Deposit Insurance Corporation to strengthen the financial system, which is essential for the economic reconstruction • Restructure the funding programs of the Economic Development Bank to provide greater choices and support to SMBs

• Promote a savings culture through educational programs and products by creating the Consumer Training Institute within the Office of the Commissioner of Financial Institutions 109


Promote all Strategic Sectors RESTORE GROWTH STRATEGIC SECTORS

Banking, Insurance, and Credit Unions

Results:

To promote a strong and healthy financial system to facilitate the efficient flow of capital in the economy

Click to edit Master text styles Manufacturing Initiatives

• The consolidation of three banks was carried out in an orderly manner and did not affect the services, in transactions facilitated by the FDIC valued in $18 billion • BBU Bank, a growing South Florida commercial bank, announced it has acquired and merged Banesco International Bank Corp. of San Juan, Puerto Rico into BBU's U.S. domestic banking operations, the first expansion by a U.S. mainland-based bank into Puerto Rico in more than a decade. • New program of direct loans of $2,000 to $25,000 for selected projects by the EDB for the development of Vieques and Culebra • The EDB will grant $4.8 MM in green loans to small and medium businesses for the development of energy conservation projects and green energy generation • The EDB has approved 950 loans for a total of $230 MM from January 2009 to August 2010 • The promotional functions of the International Insurance Center have been transferred to the DEDC and 7 new international insurance companies have been approved • 32 new cooperatives have been established creating more than 2,300 new jobs 110


The successful and orderly bank industry consolidation will improve the health of the banking RESTORE GROWTH sector and its capacity to provide credit STRATEGIC SECTORS FDIC is expected to absorb up to $5.3 B in losses due to toxic assets acquired in the process of the banking consolidation in Puerto Rico

Click to edit Master text styles

Buyers

Banco Popular de Puerto Rico

Scotiabank de Puerto Rico

Oriental Bank and Trust

Ceased Banks

Westernbank Assets: $11.94 B Deposits: $8.62 B Employees: 1,452 Branches: 46

R-G Premier Bank Assets: $5.92 B Deposits: $4.25 B Employees: 1,213 Branches: 29

Eurobank Assets: $2.56 B Deposits: $1.97B Employees: 450 Branches: 22

Scotiabank took over the assets at a discount of 7.89% and deposits at a premium of 1.35%. Credit portfolio posted a 28.4% discount (based on market value) and entered into a loss-sharing agreement with the FDIC of $5.41 B

Oriental took over the assets at a discount of 13.8% and deposits at a premium of 1.25%. Recorded the loan portfolio at a discount of 45.5% (according to market value) and entered into a loss-sharing agreement with the FDIC of $ 1.58 B

Terms

Popular agreed to purchase about $9.39 B in assets, the FDIC will retain the rest for sale. Popular entered into a loss-sharing agreement with the FDIC of $ 8.77 B

111


Create an International Insurance Center that has the capability to compete globally

RESTORE GROWTH STRATEGIC SECTORS

Strategy on three pillars Click to editbased Master text styles •

Change the legal framework: –

Federal – solicit that Puerto Rico be exempt from federal taxation on insurance policies

Local – create a system of decrees for international insurance companies and execute other lawful solutions to solidify Puerto Rico‟s competitiveness

Increase local capacity: –

Public sector – increase government resources • Create a position to manage International Insurance Centers • Create a promotion position within the DEDC umbrella

Private sector – develop a self-sustaining and effective cluster • Include in the cluster representatives from the entire supply chain sector • Foment the cluster to participate in the creation and capacity building efforts for long term success

Increase promotional efforts:

Broad based marketing through media and events

Publicity directed toward identified businesses 112


Aggressive government incentive programs have increased the availability of financing sources

RESTORE GROWTH STRATEGIC SECTORS

Click Banking, to edit Insurance Master and Credit textUnions styles New Property Sales Closings (Sept. – Apr. / YoY change)

Existing Property Sales Closings Sept. – Apr. / YoY change)

2,286

+77.9% 1,285

Sept. 2009 - Apr. 2010

+15.6%

6,969

6,030

Sept. 2010 - Apr. 2011

Sept. 2009 - Apr. 2010

Sept. 2010 - Apr. 2011

• The EDB has approved over 1,283 loans for a total of $306 MM from Jan. 2009 to Feb. 2011 • Approved Act No. 132 of 2010 “Housing Incentives Act” to stimulate the housing market • During the period from September to April: ― New Property closings have increased 77.9% ― Existing Property closings have increased 15.6% 113


Promotional efforts in insurance and credit unions have injected additional liquidity into the market

RESTORE GROWTH STRATEGIC SECTORS

Click Banking, to edit Insurance Master and Credit textUnions styles Subscribed insurance premiums

Assets and Deposits in Credit Unions

(Calendar Year in billions of $)

(Calendar Year in MM of $)

$8,000

$12.00

+5.3%

$10.00

$9.3$9.3

YOY

$8.4

$8.00

$7.0

$6.00 $3.6

$4.00 $2.00

$2.1$2.3

$2.6

$3.9

$4.2$4.4

$4.9$5.0

$3.0

$0.00

$5.4

$5.7

$6.2

$9.8

$7,500

Assets

+5.0%

Deposits

YOY

$7,000 $6,500 $6,000

$ 6,290

$6,489

$ 7,166 $ 6,699

+4.1%

$5,500

YOY

$5,000 $4,500

$ 7,524

$4,200

$4,400

$4,900

$5,100

$4,500

$4,000

• The International Insurance Center was transferred to the DEDC and 14 new international insurance companies have been approved with assets totalling $893 MM and $31 MM in investment in PR • 32 new credit unions have been established creating more than 2,300 new jobs • H.B. 3034 will amend the Insurance Code of Puerto Rico to secure a tax regime Source: Office of the Insurance Commissioner

114


Puerto Rico‟s Strategic Sectors RESTORE GROWTH STRATEGIC SECTORS

Click toFilm edit andMaster Creative Services text styles • 3rd most attractive film tax incentives of a US jurisdiction • An average of eight feature films are filmed yearly in Puerto Rico

Assets

• Since 1994 over 61 movies have been filmed in Puerto Rico – some of these productions include: Fast and the Furious 5 (2010), The Losers (2009), The Men who Stare at Goats (2008), Bad Boys 2 (2002), James Bond - Golden Eye (1994), Amistad (1997), and Contact (1997) • Locations in Puerto Rico have been used to portray locations such as: Miami, Africa, Los Angeles, Dubai, Mumbai, Iraq, Kuwait, Bahamas, Cuba, Central America, Brazil, Colombia, Chile, Hawaii and New México

Incentives

Act for the Development of the Film Industry • Production incentives • 40% tax credit on expenditures made in Puerto Rico • 20% tax credit on expenditures on non-resident talent • Infrastructure incentives • 25% tax credit on development or expansion costs, subject to a minimum investment of $5 million • Tax incentives • Preferential income tax rate between 4% and 10% • 100% exemption on dividends • 90% exemption on property taxes • 100% exemption on patents, excise taxes and other municipal taxes 115


Promote all Strategic Sectors RESTORE GROWTH STRATEGIC SECTORS

Film and Creative Services

To develop a film and creative services industry that creates new jobs and is financially viable in the long-term

Click to edit Master text styles Manufacturing Initiatives

Initiatives: • Modernize the rules on tax credits available with the amendments and extension of Act No. 362 of 1999 for ten additional years (Act No. 81 of 2009) • Encourage the development of studios, laboratories and post-production facilities, including the development of soundstages on the island

• Establish regular contact with key film production destinations, including Los Angeles and New York, and promote Puerto Rico internationally in various film festivals • Conduct collaborative workshops for all aspects of film development, including production, creative and legal and promote the education in the field • Establish agreements with local and international universities for academic and cultural exchanges • Develop a package of information on the mechanisms and structures of public and private financing in other jurisdictions in order to ensure the competitiveness of our incentives • Create an inventory of cultural resources and collaborate with the Tourism Company to promote Puerto Rico as the "Cultural Capital of the Caribbean" with a calendar of festivals and concerts, among other offerings available year-round 116


Promote all Strategic Sectors RESTORE GROWTH STRATEGIC SECTORS

Film and Creative Services

Results:

To develop a film and creative services industry that creates new jobs and is financially viable in the long-term

Click to edit Master text styles Manufacturing Initiatives

• The Fast and the Furious 5 generated 13,381 direct jobs during filming with an economic impact of $27 MM • For this year, projected impact of the film industry continues upward trend, with film productions surpassing investment of $57.5 MM achieved in calendar year 2009

• Act No. 362 of 1999 was amended to extend its validity to 2019 and adjust the process to obtain credits • Amendments of Act No.121 of 2001 were filed to increase fiscal year budget allocation to Film Industry Fund of Puerto Rico to produce more local films and guarantee profitable investments of $3MM to $5 MM • 6 workshops were supported, 8 film festivals and financing for 17 feature films, documentaries and short films with $768,575 investment so far in calendar year 2010 • Active participation in 6 global film festivals/markets annually, including Cannes and Toronto, to promote Puerto Rico as an ideal film destination

117


With the approval of new incentives, Puerto Rico is becoming a leading jurisdiction in the film industry

RESTORE GROWTH STRATEGIC SECTORS

Click toFilm edit andMaster Creative Services text styles Qualified Films

Total Qualified Spending in Puerto Rico

(Calendar Year)

12

(Calendar Year in thousands of $)

$70,000

11 10

10

9

9

8

$58,509

$60,000 $50,000

$44,769

$43,321

$40,000 6 4

4 3

$30,000 $20,193

$20,000

2

$10,000

0

$0

$8,971 $3,081

• Since 2009 there have been 24 productions filmed in PR with over $111 MM in investment • Approved Act No. 27 of 2011 known as “The Puerto Rico Film Industry Incentives Act” brings production cost structure in line with other leading jurisdictions through innovative and competitive tax incentives • For 2011 it is excepted that the impact of the film industry will surpass the $60 MM mark Source: PR Film Commission

118


Conceptual Framework of the Strategic Model for a New Economy

Click to edit Master text styles

RESTORE GROWTH

INFRASTRUCTURE

Short-, Medium- and Long-Term Growth Measures

Physical Infrastructure

Strategic Sectors

Strategic / Regional Projects

FISCAL AND CREDIT STABILIZATION TRANSPARENCY AND COMMUNICATION

119


Strategic Investments that expand our productive capacity

INFRASTRUCTURE

Click Investments to edit throughtout Master thetext entire styles island Aguadilla Airport

PR-22/PR-5 Toll Roads

Golden Triangle LMM Airport Science District

Mayagüez 2010

Green Triangle Port of the Americas Regional Strategic Projects Public Private Partnerships

Modernization of Schools– RFPs given as of May 3, 2011 120


The projects that this Administration has begun to implement have been taken by the President‟s Task Force

INFRASTRUCTURE

Click to edit Master text styles

Report by the President‟s Task Force on Puerto Rico Status Economic Recommendations:  Recommendation #18: Connecting Puerto Rico to Broadband Access

 Recommendation #19: Naval Station Roosevelt Roads (Ceiba, Puerto Rico) Recommendations for Building Competitive Industries:  Recommendation #1 and #3: Renewable Energy and Energy Efficiency Strategy for Puerto Rico / Renewable Energy Tax Credits  Recommendation #7: Puerto de Las Américas (Port of the Americas)

 Recommendation #8: Creating the Caribbean’s Health Science and Research Center in Puerto Rico 121


Improving the physical infrastructure to expand the economy‟s productive capacity and reduce operating costs

INFRASTRUCTURE

Click to edit Master text styles

Strategic investments in infrastructure will support all sectors of the economy Infrastructure PPPs

• Objective: To accelerate investment in infrastructure and private sector participation with the goal of directing 5 projects in 2011

Water

• Objective: To bring water service to the entire Island, reduce water loss in the system and ensure water supply

Energy

• Objective: To reduce the cost of energy and guarantee that electric power is accessible, reliable and sustainable

Comercio Transportation

Ports

Broadband

• Objective: Ensure that the population can count on developed access roads and safe and accessible public transportation • Objective: To maximize the role of maritime ports and airports in the industrial supply chains and tourism development

• Objective: Develop a broadband system where access and performance results in an increase in our competitiveness and economic sustainability 122


Boosting Physical Infrastructure INFRASTRUCTURE PPP

Infrastructure PPP‟s

Initiatives:

To accelerate investment in infrastructure and private sector participation with the goal of directing 5 projects in 2011

Click to edit Master text styles Manufacturing Initiatives

• Establish a transparent and agile process for the establishment of Public Private Partnerships: − Establish the PPP Authority − Establish an inventory of 8 priority projects of a total of 114 submitted projects in 5 infrastructure areas

− Establish work groups dedicated to each project − Recollection of data, analysis and conceptualization − Approval of desirability and suitability studies − Request for Qualification proponent process (RFQ) − Selection of the best companies to continue the bidding process (“shortlisting”) − RFP application process only for limited group of bidders − Alliance Committee to make final recommendation report − Approval by Board of Directors and Governor or delegated person Source: Public-Private Alliance Authority

123


The Public-Private Partnerships are on track Next milestone

INFRASTRUCTURE PPP

Click to editTentative Master text styles and preliminary calendar Desirability Study / 2010 Assets

RFQ*

(Request for Qualifications)

RFP*

(Request for Proposals)

Best and Final Offers*

Approval

Release

(„School Modernization‟)

May 28

June 2

June 22 of 2010

August 11 of 2010

On course

Highways

May 28

June 2

June 15 of 2010

November 19 of 2010

May 2011

LMM Airport

May 28

June 2

Summer 2011

Fall 2011

1Q 2012

Schools

(PR-22 & PR-5)

(Concession)

Source: Public-Private Partnership Authority / * Future dates are preliminary and could change depending on future accounts.

124


Schools

Modernization P3 Projects Item

INFRASTRUCTURE PPP

School, Click to edit Master text stylesBasilio Description Toa Baja • Renovation and construction of approximately 100 schools around the island • Economic impact: $756 MM in construction for 2 years

Project Description:

• Estimated direct, indirect and induced jobs: 13,608 (6,048 direct) • Management model: design-build-conservation • All municipalities will have at least one school included in the project • Expected to impact approximately 50,000 students from the public education system

Progress:

Rafael Cordero School, Cataño

• 64 contracts have been given, with an estimated investment of more than $400 MM • 39 RFPs have been awarded • 51 schools in construction or environmental mitigation

Next steps:

• For June 2011 additional schools will be added to the program • Qualified School Construction Bonds (QSCB) issuance expected in the second semester of 2011

Source: Public-Private Partnership Authority

125


Highways

PR-22 & PR-5 Item

INFRASTRUCTURE PPP

Click to edit Master text stylesHighway PR-22 Description • Financing, operations, conservation concession of a set of 2 existing highways

Project Description:

• 40 year concession • Economic impact: $259 MM • Estimated direct, indirect and induced jobs: 3,302 (2,072 direct)

Progress:

Next steps:

• 4 shortlisted bidders: − Abertis & Goldman Sachs − Citi & Itinere Infrastructuras − CCR − Morgan Stanley & OHL • Receive RFP and preliminary concession agreement • Advanced synchronization with the Metro Urbano project

• Announce preferred bidder • Sign concession agreement • Financial close up to 70 days after signed concession agreement

Source: Public-Private Parternship Authority

126


LMM Airport

Concession of the Luis Muñoz Marín International Airport (“LMM”) Item

INFRASTRUCTURE PPP

Click to edit Master text styles Description Luis Muñoz Marin Int‟l. Airport • Financing, operations, conservation and development of the Puerto Rico International Airport

Project Description:

• 40 – 50 year concession • Economic impact: $276 MM • Estimated direct, indirect and induced jobs: 3,772 (2,208 direct)

Progress:

Next steps:

• Desirability study completed and available through the P3 website • Significant progress in obtaining approval by airlines (around 40% of airlines already singed)

• Memorandum of Understanding with the current operating airlines • Submit RFQ, RFP and access to data room • Draft of concession agreement

Source: Public-Private Parternship Authority

127


The SJU Airport project concession offers a great investment opportunity

INFRASTRUCTURE PPP

Click to edit Master text styles

Investment opportunity in an existing infrastructure asset

• Two main runways, one of 10,000 feet and another of 8,016 feet • Four main terminals and 36 boarding gates

• Significant cargo area that reached $11.6 MM in revenue in FY 2008

Source: Public-Private Partnership Authority

• Busiest airport in the Caribbean • Airport recorded 4.2 MM passengers in FY 2009 • Diversified passenger base that contains both business and leisure passengers

• American Airlines + American Eagle are 40% of total passengers • Other airlines with a presence include: Delta, Continental, U.S. Airways, Iberia, COPA, Jet Blue • New terminal (Terminal A) to be completed in Feb-2011, with 7 additional boarding gates

128


Boosting Physical Infrastructure INFRASTRUCTURE WATER

Water

Click to edit Master text styles Manufacturing Initiatives

Bring water service to all citizens, reduce water loss from the system and insure water supply

Initiatives: • Increase operational efficiency and improve the fiscal health of the AAA in order to provide better service without increasing the cost of water. This is achieved by: − Reducing non-billed water volume through the system − Cut service to clients with the highest debt − Reduce the number of clients that receive poor water service

− Reducing energy consumption by optimizing existing facilities and using renewable energy sources − Increased water supplies: • Dam construction of Rio Blanco • Expansion of the Patillas filtration plant • Development of groundwater resources in the North • Feasibility study for the dredging of Lake Dos Bocas − Compliance with established agreements with the U.S. Environmental Protection Agency (EPA)

− Implementation of capital improvement plan which includes an investment of $371 MM for fiscal year 2010-2011 Source: Puerto Rico Water and Sewer Authority

129


Boosting Physical Infrastructure INFRASTRUCTURE WATER

Water

Results:

Bring water service to all citizens, reduce water loss from the system and ensure water Manufacturing Initiatives supplied

Click to edit Master text styles

• Cost cutting: − An aggressive cutting plan has been implemented which will allow the optimization of revenue at the Water and Sewer Authority (AAA) • Deficient Service: − The number of clients with deficient service has been reduced by 74% from 26,975 in September 2009 to 7,042 in 2010 • Energy: − On August 10, 2010 a “Request for Proposals” (RFP) was published for supplying of energy, and 19 proposals were received • Water Supplies:

− Río Blanco Reservoir: The construction was completed and the operation began June 2010 − PF Patillas: Phase 1 of the project, which will distribute 3 MGD, began distributing potable water during October 2010 − North Aquifer: Completed phase 1 of the project which consisted of a hydraulic model to determine the amount of water available. The results were favorable and Phase 2 of the project will begin which consists of well drilling (piling) Source: Puerto Rico Water and Sewer Authority

130


Boosting Physical Infrastructure INFRASTRUCTURE ENERGY

Reduce energy costs and ensure that energy on the island is affordable, viable, and Manufacturing Initiatives sustainable

Click to edit Master text styles

Energy

Initiative: • Stabilize the fiscal situation of the PREPA through a reorganization of the public corporation • Increase operational efficiencies and reduce energy costs − Convert some of the plants that utilize oil to natural gas and develop new electric energy generation capacity based on other fuels to reduce production and maintenance costs − Implement a strategic plan to protect Puerto Rico from the increases and decreases of global energy prices(“hedging”) − Viable energy projects from renewable sources, as agreed on in an agreement among the members of CPPE − Establish a program to reduce energy costs through investment at the government level (ARRA funds) in the efficient use of energy in public buildings and an energy savings awareness program − Greater control on energy distribution (reduce energy theft) − Establish a rigorous maintenance plan for the plants

Source: Electric Power Authority

131


Boosting Physical Infrastructure INFRASTRUCTURE ENERGY

Energy

Results:

Reduce energy costs and ensure that energy on the island is affordable, viable, and Manufacturing Initiatives sustainable

Click to edit Master text styles

• Reduce the number of directors from 12 to 7 and personnel by 739 positions, equivalent to $40.3 MM, through attrition • Reduce „extra time‟ by $23 MM and adjust medical plan for retirees actuarially by $46 MM for a total reduction of $109.3 MM • A new fuels diversification plan from oil to gas is being implemented • The use of natural gas will permit establishment of a stable fuel adjustment to avoid the highs and lows of energy prices • Various renewable energy projects already contracted and signed • Joined in the mission to promote the efficient use of energy and include as an objective the establishment of an intelligent network to control energy and use it efficiently. • As of June 2010 had billed $7 MM on account of power theft • A rigorous maintenance plan of the power plants is in process

Source: Electric Power Authority

132


Vía Verde Project will reduce oil dependency and energy costs for families and increase competitiveness of firms

INFRASTRUCTURE ENERGY

Click to edit Master text styles

An ambitious plan to reduce oil dependency and energy costs •

A pipeline that will transport natural gas from EcoEléctrica in the municipality of Peñuelas to electricity generating plants of PREPA located in the North Coast of PR

Construction time: 18 months Diversification of Energy Sources

Current

2014

Carbon

Oil Natural Gas

Oil

Natural Gas

Hydro

Renewable

Carbon

Operation will begin in January 2012 133


„Vía Verde‟ project reduces the dependency on petroleum, and with this, the cost of energy to families and businesses, achieving a higher level of competitiveness to Puerto Rico

INFRASTRUCTURE ENERGY

Click to edit Master text styles

An agressive plan to reduce the dependency and energy costs Supply natural gas to South Coast 5 and 6 as well to the generating plants of Cambalache, Palo Seco and San Juan units 5 and 6 through a 24” diameter steel pipe system

Source: Puerto Rico Electric Power Authority

134


Energy diversification and emmission reduction plan

INFRASTRUCTURE ENERGY

Reduction in Emissions lbs/yr.

Click to edit Master text styles

Capacity

South Coast 5, 6

Comb

Actual

820 MW

Itinerary

270 MW

Residual 6 &/or 2

LNG

% Reduction

1st

Units conversion 5 & 6 to natural gas by December 2010.

53,575,279

20,388,938

-62%

2nd

Replace units 1 to 4 with a combined cycle of natural gas by 2014

8,952,231

2,221,419

-75%

3rd

Conversion to natural gas by December 2011

37,804,980

11,605,255

-70%

#6 South Coast 1-4

Strategy

San Juan CC 5, 6

440 MW

#2

San Juan 7, 8, 9, 10

400 MW

#6

4th

Conversion to natural gas in 2011

432 MW

#6

4th

Conversion to natural gas in 2011

41,936,520

10,154,724

-76%

247 MW

#2

5th

Conversion to natural gas in 2011

11,522,691

3,830,801

-67%

900 MW

#6

Conversion to natural gas in 2014

40,024,520

24,414,957

-61%

Buoy system

12,774,580

4,721,800

-63%

Palo Seco 3, 4

Cambalache 1, 2, 3

Aguirre 1 & 2

6th Aguirre CC

592 MW

#2

Source: Puerto Rico Electric Power Authority

135


PREPA published the necessary regulations to make the Puerto Rico energy transfer system viable

INFRASTRUCTURE ENERGY

Click to edit Master text styles

New rate structures, regulations and procedures for the transfer •

Law No. 73 of 2008, ordered the AEE to establish the necessary mechanisms for the implementation of an energy transfer system (“wheeling”) – As part of the implementation of the transfer system, various regulations and procedures were published including the following: • Wheeling Transmission Regulation • Wheeling Interconnection Procedure • Wheeling System Tariff Schedule

– The preliminary tariffs were published for the following services: • • • • • • • • • •

Scheduling, System Control, and Dispatch Service Reactive Supply and Voltage Control from Generation Service Regulation and Frequency Response Service Energy Imbalance Service Operating Reserve – Spinning Reserve Service Operating Reserve – Supplemental Reserve Service Firm Point to Point Transmission Service Location Access Charges Stranded Costs Other Recovery Costs

Source: Puerto Rico Electric Power Authority

136


Boosting Physical Infrastructure INFRASTRUCTURE TRANSPORTATION

Transportation

Ensure that the population can count on developed access roads and safe and accessible Manufacturing Initiatives public transportation

Click to edit Master text styles

Initiatives: • Establish a Regional Outreach Transportation System(STAR by its Spanish name), connecting the North, Central-East and East regions with the San Juan metropolitan region through a mass transit system that is both cost efficient and deployed rapidly • Increase Urban Train user traffic to reduce congestion and a significant source of pollution through: − Construction of systems such as a “Rapid Transit Bus” (RTB) / “Dynamic Toll Lane” (DTL) that connects Hatillo-Bayamón-San Juan, Caguas-San Juan and Carolina-San Juan − Construction of a light rail system linking the Convention Center district, Old San Juan and the Urban Train terminal in Santurce • Renovate public space of town squares with environmentally sustainable elements, including urban agricultural initiatives and public art

• Leveraging the PPA tool for maintenance and optimization of exisiting roads and the construction of new transit roads such as: − PR-22 − PR-66 (Phase 2) − PR-53 137


Boosting Physical Infrastructure INFRASTRUCTURE TRANSPORTATION

Transportation

Results:

Ensure that the population can count on developed access roads and safe and accessable Manufacturing Initiatives public transportation

Click to edit Master text styles

• Approval of ARRA funds for pilot project “Tu Guagüita”, a middle sized autobus system that increases use of the Urban Train from highly dense areas not served by the AMA • Invested $22.5 MM in 40 new hybrid buses to renew the AMA fleet

• Completed Phase I (Carolina) of the restructuration of the AMA routes • Continuation with the planning and conceptualization of the Carolina-San Juan BRT and design of the Caguas-San Juan BRT • Presented an alternative study to FTA on the San Juan light train

• Initiated construction of $105 MM (ARRA funds) for State road improvements and new projects such as: − PR-10 Adjuntas-Utuado − Conversion of PR-2 Highway in Ponce − Improvements to PR-2 from Peñuelas-Sabana Grande − Northern Deviation in Mayagüez 138


Boosting Physical Infrastructure INFRASTRUCTURE PORTS

Maximize the role of our maritime ports and airports in the industrial supply chain and in the development of tourism Manufacturing Initiatives

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Ports

Initiatives: • Stabilize the finances of the Ports Authority (AP) through the reduction of operational costs to achieve greater liquidity and a better credit classification • Increase the percentage of cargo inspections that are received in the ports • Attract investment in infrastructure and services through public private alliances such as: − Operation, maintenance and commercial development of the Aguadilla Airport − Design and reconstruction of the Isla Grande dry-dock • Improve relations with cruise lines and airlines to expand their presence through alliances with the Tourism Company • Prepare a strategic plan that will permit the movement of operations in the San Antonio canal to help fully develop the Golden Triangle • Promote the development of Value added zones in the vicinity of the ports

Source: PR Ports Authority

139


Boosting Physical Infrastructure INFRASTRUCTURE PORTS

Maximize the role of our maritime ports and airports in the industrial supply chain and in the development of tourism Manufacturing Initiatives

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Ports

Results:

• A fiscal stabilization plan has been defined and is being executed resulting in greater budgetary control and better cash flow management • Container inspection operations will commence in December 2010 • Development and optimization of the Aguadilla airport is being coordinated with the Mayor of Aguadilla • The PA and DDEC have strengthened relations with diverse cruise ship companies to attract a greater quantity of homeport cruises • In coordination with DDEC, the PA is identifying locations to relocate San Antonio operations within the San Juan bay • The PA is constantly promoting the development of the ports − In Pier 3, removal of the tension structure is underway which prevented the docking of larger ships − In various ports around the island, we have preliminary proposals from interested companies • At the moment, we have $21.8 MM in capital improvements bids that will be invested in fiscal year 2010-2011

Source: PR Ports Authority

140


Boosting Physical Infrastructure INFRASTRUCTURE BROADBAND

Broadband

Develop a broadband system where access and performance results in an increase in our Manufacturing competitiveness and economic sustainability Initiatives

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Initiatives: • Establish a public policy with the objective of providing access, adoption and velocity to broadband internet • Assign funds for the planning and development of a broadband system • Facilitate the application and granting of available federal funds • Provide the Chief Information Officer the necessary resources that can help to develop and promote the infrastructure and Information Technology and Communications (ITC) sector

• Promote an interconnected Puerto Rico − Broadband, Voice-over IP, Telecommuting, Telemedicine, Education − Innovation, quality and access to government services − Promote the adoption of the Internet through trainings, Public Computation Centers, and applications (education, health and entertainment) • Promote the ITC sector − Development of talent and emergence of the industry, encouraging promotion of product innovation and exporting of services

Source: Goverment Chief Information Office

141


ARRA funds have also been secured for the improvement of the island‟s broadband infrastructure

INFRAESTRUCTURA BANDA ANCHA

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$70 MM was requested of which $40 MM have already been awardeos INTENE / SUAGM $22.6 MM ARRA funds requested for a broadband system

PR Bridge Initiative $25.8 MM ARRA funds awarded

INTENE Mapping / Planning $1.4 MM ARRA funds awarded

These regional projects will impact over 800,000 citizens, while the PR Bridge Initiative will impact the entire Island

INTECO

INTECO $12.9 MM ARRA funds awarded for a broadband system

142

MENE > Infraestructura > Infraestructura Física > Banda Ancha


Strategic projects will generate investments in all the regions of the Island to foster INFRASTRUCTURE STRATEGIC PROJECTS balanced economic development

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Strategic investments in infrastructure will support all sectors of the economy Golden Triangle

• Objective: To redevelop areas of Old San Juan, Puerta de Tierra, Isla Grande, the Convention District and Condado, among others

Caribbean Riviera

• Objective: To develop a tourism complex, related to the concept of destinations of entertainment and gaming

Science City

• Objective: To create a district to position Puerto Rico at the forefront of the science, technology and R&D industries

Comercio Port of the Americas

• Objective: To create an international trans-shipment Post-Panamax port of global calibre with value-added zones in the southern region of Puerto Rico

Mayagüez 2010

• Objective: To develop the infrastructure to hold the XXI Central American and Caribbean Games in the summer of 2010

Aguadilla Airport

• Objective: To redevelop the Aguadilla airport as the second most important international airport of P.R. and as a regional logistical center 143


Strategic projects will generate investments in all the regions of the Island to foster balanced economic development

INFRASTRUCTURE STRATEGIC PROJECTS

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Strategic investments that will support all sectors of the economy Aguadilla Airport Aguadilla

Golden Triangle San Juan

Riviera del Caribe

Science City San Juan

Green Triangle Ceiba, Vieques y Culebra

Mayagüez 2010* Mayagüez Comercio

*Mayagüez 2010: • 104,000 room nights • 84% hotel occupancy • $75 MM economic impact in tourism

Port of the Americas Ponce

144


Golden Triangle

INFRASTRUCTURE GOLDEN TRIANGLE

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145


We have a short term plan to start construction on Bahía Urbana, a component of the Golden Triangle

INFRASTRUCTURE STRATEGIC PROJETCS

Click to edit Master text styles Description

Item Project Description:

• Long term urban redevelopment of the San Antonio Canal that is an essential component of the Golden Triangle

Statistics:

• • • • • • •

Project foot print of approximately 90 acres Estimated Public Investment of $525 MM Estimated investment at $1.4 B 444 direct and indirect jobs in construction of Phase 1 172 permanent jobs in operations of Phase 1 20,000 direct and indirect jobs in construction 7,000 permanent direct, indirect and induced jobs

Interim Improvement Program

• • • •

Progreso:

Executive Order signed to resume the project Updated Master Plan Financial and legal structure of the project is defined $31 MM have been assigned for the Interim Improvement Program (Phase 1) • Site Consultation and the Environmental Impact Statement have been approved • Work has commence on Phase 1 • Proposals were solicited for Piers 7 and 8, the most important component of Phase 1

REHABILITATION OF PIERS 7 AND 8 HAS BEGUN

146


Bahia Urbana seeks to encourage physical growth, social and economic community

INFRASTRUCTURE GOLDEN TRIANGLE

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A vibrant central area

A vibrant central area, with a variety of restaurants and stores aimed at the immediate existing and proposed community, as well as the tourist clientele

Public park system with unique walking trails A wide promenade along the San Antonio canal with a safe and attractive system of public parks and recreation areas

Residential neighborhoods A wide range of neighborhoods with an eclectic mix of residential products, all of which will offer views to the water or to the park system and green areas

Shops, hotels, cultural and recreational activities Economic development axels, social and environmental that facilitate employment, daily life and commerce

147


Green Triangle

INFRASTRUCTURE GREEN TRIANGLE

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148


A new concept for the development of Roosevelt Roads that includes Vieques and Culebra Item Project Description:

INFRASTRUCTURE STRATEGIC PROJETCS

Click to edit Master text styles Description Roosevelt Roads Land • Development of a multi-use complex: touristic, following the concept of entertainment destination, gambling, eco-tourism, commercial and residential • 1,300 acres will be utilized for the development of Riviera del Caribe • Estimated investment of $2.7 B

Statistics:

• 29,000 direct, indirect, induced jobs in construction • 6,600 permanent jobs in operations

Progreso:

• An amendment to the Re-use Plan was submitted • An agreement (MOU) has been signed to transfer certain utilities of the base • $700,000 were invested in the Institute of Aviation and Maintenance to commence aviation classes • Act No. 118 was approved “Tourism incentives for the economic development of Municipalities Act” • An environmental impact study was commissioned and its expected to be completed by July 2011 • The land from the Roosevelt Roads hospital, radar tower and airport was transferred to the Government • The Government of Puerto Rico received the title for 1,300 acres of Roosevelt Roads

Proposed Plan: “Riviera del Caribe”

FINALIZE TRANSFER OF LAND IS EXPECTED TO BE BETWEEN AUGUST/SEPTEMBER 2011

149


Re-assign $11.2 M to Municipalities and Government Agencies for development of the east area of the island

INFRASTRUCTURE

Infrastructure projects focused on improvements to streets, parks, bridges, parking lots, sewers systems, among others

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Municipalities

Joint Resolution No. 100 Approved 07/26/2010

Ceiba

$1,500,000

Naguabo

$1,500,000

Roosevelt Roads (LRA)

Fajardo

$1,000,000

Land and facilities

Loíza

$950,000

$3,084,900

Canóvanas

$800,000

Luquilllo

$800,000

Water and Sewer Authority

Vieques

$800,000

Sanitation system in Río Grande

Culebra

$600,000

$165,100 150


Science City

INFRASTRUCTURE SCIENCE CITY

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151


Science City spearheads the transition to the Knowledge Based Economy Item Project Description:

INFRASTRUCTURE STRATEGIC PROJETCS

Click to edit Master text stylesScience District Description • Urban development of over 7.1 MM s.f., including 1.1 MM s.f. of laboratory space, over 800,000 s.f. of mixed-use space, a 100-room hotel and 3,100 housing units • Project footprint of approximately 78 acres • Government investment estimated at $353 MM

Statistics:

• Private investment estimated at $1.4 B • 28,328 direct and indirect jobs in construction and operations • Completed an economic viability study

Projected use of laboratory space („000 s.f.)

• Commenced work on infrastructure improvements

Progress:

• Act No. 150 was approved in order to promote the participation of the UPR faculty in developing and marketing of intellectual property and technology transfer • The Science District legislation was presented: HB 2964 and SB 1839 • Approved the Site Consultation

APPROVAL OF THE SCIENCE DISTRICT LEGISLATION

152


Port of the Americas

INFRASTRUCTURE PORT OF THE AMERICAS

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153


As a strategic project, the Port of the Americas will be the future economic engine for southern region of Puerto Rico

INFRASTRUCTURE STRATEGIC PROJETCS

Click to edit Master text styles Description Port of the Américas

Item Project Description:

• A world class international trans-shipment Post-Panamax port with Value Added Zones (“VAZ”)

Statistics:

• • • •

Programmed government investment up to $250 MM Total investment estimated at $750 MM 12,000 direct and indirect jobs 350 permanent jobs when the Port opens

• Completed the purchase and delivery of two Super PostPanamax cranes which have been certified and are already in use to unload containers

Partial construction of the VAZ

• Completed the installations for handling up to 250,000 TEUs

Progress:

• The GDB extended the projects line of credit for it to reach its limit of $250 MM • Negotiations with a multinational financial consulting firm for a second selection process for an international operator to operate the Port of the Americas • Continue with the basic infrastructure investment program to accommodate up to 500,000 TEUs

FINALIZE NEGOTIATIONS WITH OPERATOR

154


Aguadilla Airport

INFRASTRUCTURE AGUADILLA AIRPORT

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155


Position the Aguadilla Airport as a central hub for distribution and logistics of the Caribbean and Latin America Item Project Description: Statistics:

INFRASTRUCTURE STRATEGIC PROJETCS

Longest runway in the Click to edit Master text styles Description Caribbean • Redevelopment of the Aguadilla Airport as Puerto Rico‟s second international airport and regional logistic center • Inversión estimada de $21.8 MM de fondos ARRA y PEC • 350 empleos directos e indirectos • $3 MM were assigned by the Local Stimulus Plan for interim improvements of the control tower

• New strategy for air access that incorporates not only passenger traffic but also cargo

Progress:

• Inauguration of direct flight to Spain from the "Iniciativa para el Desarrollo Económico del Oeste" ("IDEO") with an investment of $4 MM and the creation of 100 jobs

IDEO flight

• Next Steps: − Extension of “taxiway” − Construction of “jet bridges” − Construction of new building for aerial rescue − Public Private Partnership for the development of the cargo sector

CONCESSION FOR THE DEVELOPMENT OF THE CARGO SECTOR

156


Conceptual Framework of the Strategic Model for a New Economy

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RESTORE GROWTH

INFRASTRUCTURE

COMPETITIVENESS

Short-Term Stimuli

Physical Infrastructure

Key Reforms

Long-Term Growth Measures

Strategic / Regional Projects

Additional Measures

FISCAL AND CREDIT STABILIZATION TRANSPARENCY AND COMMUNICATION

157


We have approved and implemented reforms to reduce the costs of doing business and improve the competitiveness of our economy

COMPETITIVENESS

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Reducing the costs of doing business and facilitating private sector growth PPPs Reform

Permits Reform

Executive Branch Re-organization and Modernization

Comercio Energy Reform

• Objective: Act No. 29 of 2009: Creates new public policy related to infrastructure investment and public services

Objective: Act No. 161 of 2009: Creates a new permits system that is transparent, agile, efficient and accurate

• Objective: Act No. 182 of 2009: Promotes a government structure that responds to current needs and fosters a better quality of life • Objective: Act No. 82 and 83 of 2010: To establish a new energy policy and programs to diversify the sources of energy through RPS* and the GEF**

Tax Reform

• Objective: Act No. 1 of 2011: To reform the tax system and bring relief to the Puerto Rican taxpayer through reduced and fair tax rates

Labor Reform

• Objective: To incentivize work by increasing the participation rate and demand for labor in the private sector

*RPS is a regulatory policy that requires production increments from renewable energy sources, including wind, solar, biomass, and geothermal ** GEF = Green Energy Fund

158


These reforms address challenges regarding costs, efficiency and functionality, which currently reduce competitiveness in our economy

COMPETITIVENESS

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Reduces costs of doing business and facilitates growth of private sector Limited Capacity to Invest

Public-Private Partnerships Reform

Act #29 of 2009

Excessive and Inefficient Regulation

Permits Reform

Act #161 of 2009

Bureaucratic Government Services

Reorganization and Modernization of Executive Branch

Act #29 of 2009

High Energy Costs

Energy Reform

Acts #82 and #83 of 2010

Excessive Tax Burden

Tax Reform

Act #171 and 172 of 2010 Act# 1 of 2011

Inefficient Labor Market

Labor Reform

Under examination 159


These reforms address challenges regarding costs, efficiency and functionality, which currently reduce competitiveness in our economy Public-Private Partnerships Reform

COMPETITIVENESS PPP

Creates new public policy related to infrastructure investment and public Manufacturing Initiatives services

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Description:

• Change in public policy related to the management of infrastructure and public services by encouraging private sector participation and innovation in services

Legislative Status:

• Approved (June 8th, 2009) – Act No. 29 of 2009 “Public Private Partnership Act”

Conceptual Highlights: • Creates of a new legal framework that ensures transparency • Establishes the Public-Private Partnership Authority as an affiliate of the GDB and with its own Board of Directors • The Public-Private Partnerships Authority will seek to: − Provide greater support to the economic development strategies by promoting job creation and growth of local businesses − Improve the infrastructure of the Island to increase the reliability of services, reduce congestion, provide routine maintenance and generally enhance the value of assets − Improve safety and environmental performance

− Make infrastructure projects viable 160


Transparent process for viable private investment in infrastructure through Public-Private Partnerships 1

Click to edit Master text styles 3 process 2 Procurement

Preparation for bidding process

Desirability Study

• Analysis to determine if the proposed PPP project is appropriate and desirable for Puerto Rico • Studies are placed on Web site

for Partnership

Request for Qualifications (RFQ)

• Proponents Qualification Process • Allows to select the best companies to continue in the process • RFQ is placed on Web site

Request for Proposals (RFP)

• Limited number of companies submitted proposals • Briefings conducted to answer questions • RFP is placed on Web site

Receive final bids

COMPETITIVENESS PPP

Grant Partnership Agreement

Winner selection

• Participating companies submit their proposals and final offers

• Approval Boards of Directors, Governor and or Delegate

• Partnership Committee makes final recommendation report to Boards of Directors, Governor and or Delegate

• Final decision is placed on website

161


These reforms address challenges regarding costs, efficiency and functionality, which currently reduce competitiveness in our economy Permits Reform

COMPETITIVENESS PERMITS

Click to edit Master text styles Manufacturing Initiatives

Creates a new permit system that is transparent, agile, efficient and reliable

Description:

• Create a new permit system that is transparent, agile, efficient and reliable to serve as a tool for sustainable economic development while protecting the environment and the rights of all citizens

Legislative Status:

• Approved (December 1st, 2009) – Act No. 161 of 2009 “Permits Process Reform Act of Puerto Rico”

Conceptual Highlights: • Consolidation and simplification of the evaluation and granting or denying of permits under a single agency • Establishing a maximum of 90 days for the granting or denial of a permit that does not require a site consult • Inspections and permits through Authorized Professionals from the private sector • Create clearer rules, arranging planning criteria through regulations • Incorporate the use of information technology such as Geographic Information Systems (GIS) and electronic filing, payments and case management 162


The new Permits Act redesigns the structure and process to obtain permits, in order to facilitate economic development

COMPETITIVENESS

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New Permits Structure will come into effect on the 1st of December 2010 Current Permits Structure

New Permits Structure Project Proponent

Project Proponent

Agencies

Planning Board

Environment Quality Board

Permits Administration Office Secondary Agencies

New Permits Office

Authorized Professional

Office of the Inspector General Review Board 163


The new Permits Law of 2009 redesigned the structure and process to obtain permits to COMPETITIVENESS PERMITS facilitate development

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The Integrated Permit System became effective on December 1st 2010 = In process

Approval of Act. #161

December 1st of 2010

Definition of the new structure

June 30th of 2010

Implementation of the new structure

December 1st of 2010

V.2

Improvements to the structure

June 30th of 2011

164


These reforms address challenges regarding costs, efficiency and functionality, which currently reduce competitiveness in our economy Executive Branch Re-organization and Modernization

COMPETITIVENESS REORGANIZATION

Promotes a government structure that responds to current needs and fosters a better quality of life

Click to edit Master text styles Manufacturing Initiatives

Description:

• Promotes a governance structure that meets current needs and contributes to a better quality of service for our citizens

Legislative Status:

• Approved (December 17th, 2009) – Act No. 182 of 2009 “Executive Branch Re-organization and Modernization Act of 2009”

Conceptual Highlights: • Creates the Council for the Modernization of the Executive Branch, appointed to the Office of the Governor • The Council will recommend structures and organizations for different departments and agencies • Optimizes the level of efficiency and effectiveness of public administration, reduces public expenditure and to reallocate resources strategically • Reduces bureaucracy and streamlines government business processes • Eliminates, consolidates, transfers or restructures those agencies, departments, offices and programs that do not meet customer expectations or have been duplicated through the creation of new programs or through legislation 165


It is expected that the implementation of the reorganization plans will result in savings of $250M

COMPETITIVENESS REORGANIZATION

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Approximately 20 projects are expected to be filed •

10 projects filed which include: –

PRS0001 / PRC0001 – Attorneys: APPROVED in both chambers

PRS0002 / PRC0002 – Council of Higher Education: APPROVED (Reorganization Plan #1 July 26, 2010)

PRS0003 / PRC0003 – Municipal Complaints Ventilation Commission: APPROVED in both chambers

PRS0004 / PRC0004 – Retirement System: SUBMITTED

PRS0005 / PRC0005 – Health Insurance Administration of Puerto Rico: APPROVED (Reorganization Plan #3 July 29, 2010)

PRS0006 / PRC0006 – Public Service Appeals Commission: APPROVED (Reorganization Plan #2 July 26, 2010)

PRS0007 / PRC0007 – Department of Agriculture: APPROVED (Reorganization Plan #4 de July 29, 2010)

PRS0008 / PRC0008 – Department of Corrections and Rehabilitation: SUBMITTED

PRS0009 / PRC0009 – Department of Labor and Human Resources: APPROVED by the House

PRS0010 / PRC0010 – Office of the Commissioner of Financial Institutions: APPROVED (Reorganization Plan #7 de December 7, 2010) 166


The new website PR.GOV offers over 50 online services and received over 1,250,000 applications in CY 2010

COMPETITIVENESS

Click Online services to edit available Master through text styles TOTAL CY 2010

Criminal Record Compliance Certificate Child Support Compliance Certificate

529,310 issued

(100% automatic and free of charge)

402,839 issued

(100% automatic and free of charge)

Employer Complaince Certificate ASUME

3,806 issued

Tax Return Filing Certificate

76,775 issued

Certificate of Debt/No Debt from the Treasury

75,849 issued

Birth certificates

161,960 issued

CRIM Certificates

11,328 issued

167


These reforms address challenges regarding costs, efficiency and functionality, which currently reduce competitiveness in our economy Energy Reform

COMPETITIVENESS ENERGY

Establishes a new energy policy and programs to diversify energy Initiatives sources and incentivize Manufacturing generation of energy from renewable sources

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Description:

• Establish a new public energy policy and programs to diversify energy sources, ensuring that the generation of electricity on the Island is affordable, viable and sustainable

Legislative Status:

• Approved (June 21st , 2010) – Act No. 82 of 2010 “Public Policy on Energy diversification through Renewable and Alternative sources” • Approved (June 24th , 2010) – Act No. 83 of 2010 “Green Energy Incentives Act”

Conceptual Highlights: • Adopt a Renewable Portfolio Standard by law: − Requiring a minimum percentage of renewable energy production of 12% by 2015 and 15% by 2020 − Requiring diversification in energy production using: wind, solar, geothermal and biomass, among others • Creates the Green Energy Fund to incentivize green energy generation and create a new industry • Creation of new regulations for the construction and operation of wind farms 168


Puerto Rico currently pays among the highest electricity rates in the world

COMPETITIVENESS ENERGY

Click toElectricity edit Master text styles Cost Benchmark International Comparison* Electric Prices in KWh for Households in 2008

39.60

24.40

23.13

22.18

21.97

21.8 16.90

16.48

16.44

15.43 11.35

Denmark

Ireland

United Kingdom

Puerto Rico

Portugal

Spain

France

Turkey

New Zealand

Switzerland

United States

9.61

8.86

Mexico

Korea

US State Comparison** 35.74 22.18

Hawaii

Puerto Rico

19.71

Mass.

17.96

New York

13.75

California

13.40

Texas

* Source: International Energy Agency â&#x20AC;&#x201C; Key World Energy Statistics 2009 ** Energy Information Administration 2008

12.12

Illinois

12.10

Florida

11.85

Pennsylvania

8.98

8.26

8.01

7.57

7.41

Wyoming

North Dakota

Kentucky

West Virginia

Idaho

169


Renewable Portfolio Standards COMPETITIVENESS

Act #82 of 2010 – “Public Policy on Energy diversification through Renewable and Alternative sources”

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• • •

Renewable Portfolio Standards (RPS) is an energy policy law that requires increased production of energy from renewable sources such as wind, solar, biomass and geothermal This diversification will reduce the dependence that Puerto Rico has on oil – Diversification  Helps reduce and stabilize energy prices Between 2015 y 2028, every retail power supplier will be required to have certain percentage of their sales be from renewable energy

Actual

2015

2020

2028 +

1% Renewables

12% Renewables

15% Renewables

20% Renewables

99% Fossil Fuels

88% Fossil Fuels

85% Fossil Fuels

80% Fossil Fuels

170


Green Energy Fund COMPETITIVENESS

Click edit Master text styles Act #83 to of 2010 – “Green Energy Incentive Law” •

Creates a Green Energy Fund (“GEF”) through which the government of Puerto Rico will co-invest $290 MM in renewable energy projects over the next 10-years; initially funding of $20 MM beginning July 1, 2011

GEF, will provide flexibility for the government to establish new investment or incentive programs in the future

These funds will be received by the Department of Treasury and used for the purposes described in this Act, as it follows: Fiscal Year

Government Investment

2011-2012

$20 MM

2012-2013

$20 MM

2013-2014

$25 MM

2014-2015

$30 MM

2015-2016

$35 MM

2016-2020

$40 MM

Total

$290 MM 171


The Energy Public Policy Committee has approved 7 renewable energy projects accounting for 322 MW of renewable energy capacity

COMPETITIVENESS

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7 projects representing $1.318 Billion in investment and over 5,000 jobs Technology

Waste-toEnergy

Wind

Wind

Solar

Solar

Wind

Solar

Purchase Power Agreement with PREPA

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Capacity â&#x20AC;&#x201C; MW

80

75

40

20

57

40

10

Municipality

Arecibo

Santa Isabel

Guayanilla

Guayama

Salinas

Naguabo

Salinas

Investment in Millions

$500

$350

$60

$90

$200

$100

$18

Direct jobs (Construction/ permanent)

4,283/150

115/8

50/10

300/10

300/15

200/30

65/15

172


Pattern Energy Wind farm in the South Coast of Puerto Rico will be the largest wind energy project in the Caribbean

COMPETITIVENESS ENERGY

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• Location: Santa Isabel

• 20-year power purchase agreement with PREPA for the sale of 75 MW • Equivalent to consumption of 20,000 – 30,000 households • $215 MM estimated investment • Up to 65 wind turbines • 6 to 9 months construction period

• Direct jobs: Construction 80-150; Operation 7-10 • Substantial economic benefits : Municipal and state taxes, Port of the Americas, among others

173


Renewable Power Generation and Resources Recovery Facility of Energy Answers

COMPETITIVENESS ENERGY

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• Location: Arecibo

• Capacity to generate 80 MW • Estimated private investment of $500 MM • Development in 82 acres

• Capacity to process 2,100 tons of resources and recover and recycle 280 tons of ferrous metals on a daily basis • Operations will commence on 2013

• Direct, indirect and induced jobs: Construction 8,287; Operation 825 • Substantial economic benefits : Municipal and state taxes, Port of the Americas, among others

174


These reforms address challenges regarding costs, efficiency and functionality, which currently reduce competitiveness in our economy Tax Reform

COMPETITIVENESS TAXES

Click to edit Master text styles Manufacturing Initiatives

Reform the tax system to alleviate tax burden on citizens by reducing tax rates

Description:

• Alleviate the tax burden on citizens and corporations by reducing tax rates, and reassessing existing incentives and tax credits in order to establish an efficient and less costly system

Legislative Status:

• • • •

Approved (November 15, 2010) – Act No. 171 of 2010 Approved (November 15, 2010) – Act No. 172 of 2010 Approved (January 31, 2011) – Act No. 1 of 2011 “Internal Revenue Code for a New Puerto Rico”

Conceptual Highlights: • The reform is focused on the following areas: − The reduction of individual and corporate taxes − The introduction of measures that reward success and work − The introduction of measures that promote economic development, savings and productive investment − Simplifying the Internal Revenue Code and its different forms

− Introduce measures to tackle tax avoidance and abuse − Ensure that the reform is "revenue neutral" or "revenue positive” 175


Implementation occurred in 2 phases and in complete synchronization with our plan to balance the budget by FY 2013

COMPETITIVENESS

Click edit Economic Masterand text Goal:to Stimulate Job styles Growth

Tax Relief Measures Tax Positive Measures

Revenue Positive Tax Reform 176


Tax Reform Phase I – Tax year 2010

Click to Individuals

COMPETITIVENESS TAXES

edit Master text Corporations styles

A new tax credit to all taxpayers this year 2010. This measure represents a tax relief of $240 MM for all taxpayers and $306 on average per taxpayer

A tax credit to all non-exempt corporations in 2010, tax credit of 7% on tax liability conditioned on the payment of the Christmas bonus

The last two payments on the special property surtax is eliminated. Last payment will be on March 2011

Extension of carryover period for net operating losses (NOLs) incurred during the years 20052011 from 7 to 10 years

Source: Government Development Bank

177


Act 1 of 2011 represents the most comprehensive relief granted by a Tax Reform in the history of Puerto Rico

COMPETITIVENESS

Click to edit Master text styles Unprecedented tax relief for individuals •

Work incentives through a tax credit doubling the credit from $300 to $600 and increasing the income limit from $20,000 to $35,000

Tax Credit of $400 to people with more than 65 years and income of less than $15,000

Employee with a salary of $20,000 or less will not pay income taxes after 2011

Simplify additional deductions:

Mortgage interests: limit of 30% of adjusted gross income

Charity donations with a maximum limit of 50% of adjusted gross income and it will be permitted to deduct donations made to entities giving direct service to the community starting from the first dollar

Medical expenditures and orthopedic equipment in excess of 10% of the adjusted gross income

Student loan interests

Contributions to retirement accounts and plans, IRAs and student funds

Expands the tax brackets and reduce tax rates gradually

Source: Government Development bank

178


Act 1 of 2011 represents the most comprehensive relief granted by a Tax Reform in the history of Puerto Rico

COMPETITIVENESS

Click provides to editsignificant Masterrelief texttostyles Tax reform corporations â&#x20AC;˘

Reduction of maximum corporate tax rate from 41% to 30% in 2011 and from 30% to 25% in 2014 to promote investment and job creation

â&#x20AC;˘

We will reduce additional tax in order to reduce burden on businesses and promote investment and job creation: ACTUAL

REFORM

Additional tax based on net income subject to taxation

Additional tax based on net income subject to taxation

FROM

TO

Marginal Tax

0

100,000

25%

100,001

150,000

35%

150,001

200,000

36%

200,001

250,000

37%

250,001

300,000

38%

300,000

-

39%

Gradual adjustment over $500,000

Source: Government Development Bank

FROM

TO

Marginal Tax

0

750,000

20%

750,001

2,500,000

25%

2,500,001

-

30%

No gradual adjustment

41%

179


Act 1 of 2011 represents the most comprehensive relief granted by a Tax Reform in the history of Puerto Rico INDIVIDUALS Average Tax Savings

COMPETITIVENESS

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Ahorro de Individuos y 40% 32% Corporaciones 27% 29% 25%

49%

11%

“Reductions in individual tax rates will raise disposable income, enhance household spending/and raise GDP growth.” -Dr. Douglas Holtz-Eakin

2010 2011 2012 2013 2014 2015 2016 Tax year

CORPORATIONS Reduction in Maximum Marginal Tax Rate

41%

2010

30%

25%

2011

2014

“… corporate tax reforms would have even more dramatic impacts on growth by improving… Puerto Rico‟s competitiveness as a location in the global market for capital.” -Dr. Douglas Holtz-Eakin

Tax year 180


Measures to curtail tax evasion practices COMPETITIVENESS TAXES

Financial institutions will be required to submit financial information of clients that apply for loans over $250,000

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Enhance resources of the Treasury Department

New structure: Loan or line of credit application

over $250,000 or $500,000 (residential)

Financial Institution

Financial information of client

Credit

Collaboration with the Treasury Department to continue enhancing tax justice for everyone

Treasury Department Personal and criminal liability on the executive responsible for corporation that withholds taxes but does not remit payment to the Treasury Department (ex. Employer Withholding and Sales and Use Tax) Source: Government Development Bank

181


Measures to curtail tax evasion practices COMPETITIVENESS TAXES

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We will achieve these tax reliefs in a fiscally responsible manner â&#x20AC;˘

The tax reliefs approved for tax years 2014, 2015 and 2016 will be implemented if these three tests are met:

Tests

1 Expenses Control Target Certification: Office of Management and Budget

2 General Fund Net Revenue Target Certification: Treasury Department

3

Economy (GDP Growth) Certification: Planning Board

During fiscal years 2011 through 2016, if there is a budget surplus, the first $100 million will be deposited in a restricted reserve for a period of 10 years for the benefit of future generations Source: Government Development Bank

182


Additional tax compliance measures in combination with income source rule and special COMPETITIVENESS excise tax will result in a revenue positive strategy TAXES

Click to edit Master text styles FISCAL YEAR (in $ MMs)

2011

2012

2013

(740)

(974)

(1,083)

-

(230)

-

Special excise tax

700

1,357

1,138

Window to declare non-reported revenue

50

-

-

Elimination of subsidies and certain tax credits

25

50

50

TAX REFORM IMPACT

35

203

105

Reliefs: Tax Reform reliefs Elimination of property surtax Revenue Measures:

REVENUE POSITIVE REFORM These projections do not include additional revenue estimates from economic feedback and natural revenue growth that will be presented with the Tax Reform Bill183


These reforms address challenges regarding costs, efficiency and functionality, which currently reduce competitiveness in our economy Labor Reform

Description:

COMPETITIVENESS LABOR

Labor reforms to incentivize work, increase labor force participation rate and increase labor Manufacturing Initiatives demand in private sector

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• To incentivize productivity and work by increasing the participation rate and demand for labor in the private sector • To simplify and harmonize Puerto Rico‟s labor laws and regulations with Federal standards

Legislative Status:

• Labor reform alternatives are being discussed with private and public sector stakeholders

Conceptual Highlights: • Provide certain exclusions to small and medium businesses and non for profits • Provide flexibility on time and work and permit that employees and employers agree on terms mutually • Increase the flexibility of contracting temporary employees and establish longer periods of probation • Simplify the process and balance the weight of erroneous evidence of firing employees

184


Mi Salud will be available for small and medium sized businesses Mi Salud

COMPETITIVENESS MI SALUD

Local Health Reform will transform actual system into a less complex one with a focus on Manufacturing Initiatives patients

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Initiatives: • New plan will eliminate the need for patients to get approval from their primary physician for every prescription • No need from primary physician to refer you to a specialist • Reform will require all health insurance companies to provide 24 hour phone lines for patients to consult health professionals • Reform will also require all medical groups to have primary physician services at least until 9:00pm • Insurance companies will be required to pay health providers at least 90% of its billed services no later than 30 days, the remaining 9% no later than 90 days, and the last 1% no later than 1 year Results:

• Currently 1,480,000 people have the card of the Health Reform. Among those, 840,300 have received the new Mi Salud Card • In the next 18 to 24 months tens of thousands of people will be added to the program, including about 200,000 former recipients of the card from the Health Reform Program that were removed during the previous two administrations • For FY 2011, $ 1.958 B were budgeted for the program from federal and state funding allocations 185


Federal Health Reform will provide Puerto Rico with a significant increase in Medicaid funding, which will allow overhaul and expansion of local health reform COMPETITIVENESS MI SALUD program

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$8.6 billion of cumulative incremental Medicaid funding in a 9-year span Total contributions will increase matching from 22% to approximately 50% funding during FY 2019, still significantly below State average matching of 83%

$864

$904

$945

$989

$1,034

$1,082

$1,132

$1,184

$492

FY 2011

FY 2012

Source: Government Development Bank

FY 2013

FY 2014

FY 2015

FY 2016

FY 2017

FY 2018

FY 2019 186


Local Health Reform will transform actual system into a less complex one with a focus on patients

COMPETITIVENESS MI SALUD

Click to edit Master text styles Highlights:  New plan will eliminate the need for patients to get approval from their primary physician for every prescription  No need from primary physician to refer you to a specialist  Reform will require all health insurance companies to provide 24 hour phone lines for patients to consult health professionals  Reform will also require all medical groups to have primary physician services at least until 9:00 pm

 Insurance companies will be required to pay health providers at least 90% of its billed services no later than 30 days, the remaining 9% no later than 90 days, and the last 1% no later than 1 year 187


The Special Commission for the Retirement System of Puerto Rico delineated a wide array of measures that could be COMPETITIVENESS undertaken to assure the future solvency of the Systems PENSION PR‟s Government Pension Systems

Click to edit Master text styles Manufacturing Initiatives Assure the future solvency of the Government‟s Retirement System

Benefits Reductions:

• • • •

Increase the Retirement Age to 65 years Eliminate Merit Pensions of 75% of salary Put a cap on pensions: $60,000 for Employees; 36,000 for Teachers Prohibit all future early retirement programs that are not actuarially positive to the system

Contribution Increases:

• •

Increase employer contribution rate by 1% per year for 10 to 15 years Increase employer contribution rates by 0.25% for each 1% contributed by the employer or increase employee contribution rates proportionately to salary scale

PostEmployment Benefits Reductions:

• •

Eliminate most Special Laws: Christmas bonus, Summer bonus, medicine allowance Compensate minimum pension recipients by a proportionate increase in minimum levels, but dedicate the remaining funds as a special contribution to the plan

System Cash • Flow • Measures: •

• •

Eliminate personal loans or substantially reduce the maximum amount of loans made Do not allow renewals until one year before final maturity, or allow only after two years of payments Create other revenue sources: Special Lottery drawings, special tax on government contractors, etc. Make special legislative appropriations yearly from the general fund Establish legislation to disallow late payments by Employers: special collections from CRIM, stiff penalties for late payments

Source: Government Development Bank

188


Taskforce was created to find ways of strengthening the Retirement System

COMPETITIVENESS PENSION

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This group of experts had broad and balanced representation •

Members of the Special Commission: – President – Labor Secretary – Representative of the Retirees Association

– Representative of the Special Commission – (2) Representatives of the employees – (2) Representatives of the Legislative branch

– (2) Representatives of the Executive branch

Objective: 1) Provide recommendations to the Governor taking into account the sensitive issues of the retirement system 2) Providing alternatives to all interested parties to submit ideas 3) Restore confidence of retirees

Final Report was submitted to the Governor on October 2010 189


Historically, the Puerto Rico Retirement systems have been severely underfunded, benefits payments COMPETITIVENESS consistently exceeding contribution PENSION

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Expected to reach insolvency within the next 8 to 10 years Unfunded Obligation

Funding Level

Active Participants and Retirees

Employee Retirement System

$17 B

9.8%

247,010

Teacher Retirement System

$6.5 B

24.7%

79,052

Judicial Retirement System

$273 MM

15.6%

759

TOTAL

â&#x2030;&#x2C6; $24 B

According to the most recent actuarial valuations, as of June 30, 2009

â&#x2030;&#x2C6; 327,000 190


Puerto Rico is among the few jurisdictions that eliminated Defined Benefit plans, eliminating the risk of widening actuarial deficits

Click to edit Master text styles VT

WA

ND

MT

MN

OR

NV

WI

SD

ID

WY

CO

CA

MI

IL

KS

WV

KY

OK

NM

SC

AR MS

TX AK

VA

NC

TN AZ

MA RI

OH

IN

MO

ME

PA

IA

NE UT

NY

NH

COMPETITIVENESS PENSION

AL

GA

LA

FL

Puerto Rico

HI Source: Government Development Bank

States with Defined Benefit Plan States with Defined Benefit and Defined Contribution Plan States with Hybrid system States with Defined Contribution Plan only 191


We are proactively addressing the inherited challenges that have been ignored for decades

COMPETITIVENESS PENSION

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Summary of Recommendations Special Commission Member

Increase in Employer Contribution

Increase in Employee Contribution

Change in Benefit Structure

Evaluation of Special Laws

Limit Personal Loans Grant

Milliman Consulting (Employer Rep.) AON Consulting (Employer Rep.) AFSCME (Employee Rep.) Teachers Association Retired Employees Association Legislative Assembly Permanent Special Commission Source: Government Development Bank

192


The Secretary of the Labor will present a comprehensive consensus legislation next year to tackle the unfunded liability of the System

COMPETITIVENESS PENSION

Click to edit Master text styles Recommendations provided by the Special Commission will now be carefully analyzed to present a comprehensive legislation next year:

Secretary of the Labor Task force will evaluate the following:

 Additional employer contribution needed to reach ARC and gradually improve funding ratio  Impact of special laws  Impact of personal loans portfolio‟s impact on system cash flows

Source: Government Development Bank

193


We have enacted a voluntary program to reduce government expenses and improve actuarial position, incentivizing early retirements that will provide a positive actuarial impact through Act 70 of 2010

COMPETITIVENESS PENSION

Click to edit Master text styles Targeted Years of Service Health Insurance Liquidation of Benefits Incentive Payment

A

B

C

All

15-29

30+

Positive Actuarial Impact Age 15 16 17 18 19 20 25 29

% Final Average Pay Act 70 Act 447 Act 1 Window

22.5 24.0 25.5 27.0 28.5 30.0 40.0 48.0

22.5 24.0 25.5 27.0 28.5 30.0 37.5 43.5

37.5 40.0 42.5 45.0 47.5 50.0 50.0 50.0

This employees would otherwise retire with 75% final average pay Source: Government Development Bank

194


Act 70 of 2010 provides a twofold positive impact on the System

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Employees adopting retirement incentives: (window was extended through the month of November 2010)

Act 70 of 2010

1

COMPETITIVENESS PENSION

4,000 Positions affected by Act 70 will be eliminated

Employees voluntarily adopting the programs will retire with a lower pension rate than the 75% they would have received if they awaited to achieve 30 years of service

2 Opting for early retirement, retirees will be paid a pension rate based on a potentially lower salary than otherwise vested if they achieve 30 years of service Source: Government Development Bank

195


Conceptual Framework of the Strategic Model for a New Economy

Click to edit Master text styles OBJECTIVE: Growth, Competitiveness and Jobs RESTORE GROWTH

INFRASTRUCTURE

Short-, Medium- and Long-Term Growth Measures

Strategic Sectors

METRICS Dashboard

Physical Infrastructure

COMPETITIVENESS

METRICS Dashboard

Strategic / Regional Projects

FISCAL AND CREDIT STABILIZATION TRANSPARENCY AND COMMUNICATION

Functional Infrastructure

Key Reforms / Cost Reduction


We are diversifying our economy by modifying the obsolete past model strictly based on tax incentive grants and creating an environment that promotes exports in order to IMPLEMENTATION attract foreign investment

Click to edit Master text styles Model New Multi-Strategic

Previous Model

Dependence on a sole development strategy

Diversified portfolio of strategies that reduces fiscal impact Financial Services

Other sectors and actions

Effect of Industrial Tax Credits (S936 + Local Incentives)

Key Reforms

Capital Improvement Plans

Other Funds

Government sector

Sole Strategy Dependence

Strategy Diversification

Industrial Promotions

Local Stimulus

PPPs Strategic / Regional Projects

Model based on dominant role of industrial incentives; undiversified model; high risk concentration for the future; large government sector to cover the gap created by insufficiencies from the sole dominant development strategy

Model of diversified strategies and actions; risk is distributed throughout different strategies; government is reduced and the development of the private sector is stimulated to ensure more dynamism, fiscal stabilization, better management and implantation of public policy


Agenda 1

Click to edit Master text styles Introduction to Puerto Rico

2

The Economic Challenges are of Historical Proportions 3

The Strategic Model for a New Economy (â&#x20AC;&#x153;MENEâ&#x20AC;?) 4

Results from the Implementation of the MENE 198


Interagency coordination to ensure implementation and monitoring

IMPLEMENTATION

Click to edit Master text styles STEERING COMMITTEE OF THE STRATEGIC MODEL FOR A NEW ECONOMY

EXECTUIVE COMMITTEE DEPT. ECONOMIC DEVELOPMENT AND COMMERCE OFFICE OF THE GOVERNOR GOVERNMENT DEVELOPMENT BANK

199


Objectives and Indicators in the mid- and long-term (4 and 8 years, respectively) September March 2013 Click to edit Master text styles 2009 2011

Indicator

IMPLEMENTATION

2017

GROWTH Economic Activity Index

133.2

127.3

145.1

160.5

GNP Annual Growth Rate

(3.8%)

(1.0%)

1.8%

3.0%

Participation Rate

43.0%

40.6%

45.6%

48%

Unemployment Rate

15.9%

16.9%

12.7%

10%

New Jobs (Accumulative since August 2009)

---

(26,000)

125,000

260,000

37.5

64

60

80

($3,306 MM)

($1,000 MM)

balanced

balanced

Internet Users per each 100 Individuals Budget Surplus / (Deficit)

200


Objectives and Indicators in the mid- and long-term (4 and 8 years, respectively) March 2013 Click to editSeptember Master text 2009 2011 styles

Indicator

IMPLEMENTATION

2017

INFRASTRUCTURE # of PPP Projects (Accumulative)

---

1

13

21

Private Investment in PPPs (Accumulative)

---

---

$4.5 B

$6.214 B

69%

69%

55%

12%

.7%

.8%

6%

13%

Baa3

A3

A3

A2

Competitiveness Ranking (WEF)

42

41

35

25

Energy Price (cents/kWh)*

21.52

22.18

18

14

% of Energy Dependence on Oil-based Sources

% of Energy Dependence on Renewable Sources

COMPETITIVENESS Central Government Credit Ranking

* Average price (consumer and industrial)

201


We are monitoring the state of the economy monthly through the GDB‟s Economic Activity Index

RESULTS

Click to edit Master text GDB Economic Activity Indexstyles 3.0% 1.0% -1.0%

-3.0% -5.0% -7.0% -9.0% FY 2005

FY 2006

FY 2007

FY 2008

FY 2009

Economic Activity Index – GDB

FY 2010

FY 2011

Year-over-year change of IAE (%)

Recent months improvement in EAI has not been seen since September 2007 Source: Government Development Bank of Puerto Rico

202


We are monitoring the state of the economy monthly through the GDB‟s Economic Activity Index

RESULTS

Click to edit Master text GDB Economic Activity Indexstyles 1.0% 0.0% -1.0%

139.5 138.1 136.4

-2.0%

134.7

-3.0% -4.0%

-2.5%

135.7 134.1 133.7

133.0 133.1

-4.2%

-3.3% 132.3 132.0

129.5 129.7

-5.0%

129.2

-1.8%

-2.8%

-3.2%

130.3 130.3 128.9 127.9 127.5 127.6

-4.9%

-6.0%

-2.7%

-3.9%

131.3 130.2

-2.0%

128.4 127.1

126.6 126.9

127.3

-6.2%

-7.0%

-6.6%

Economic Activity Index – GDB Source: Government Development Bank of Puerto Rico

Mar-11

Feb-11

Jan-11

Dec-10

Nov-10

Oct-10

Sep-10

Aug-10

Jul-10

Jun-10

May-10

Apr-10

Mar-10

Feb-10

Jan-10

Dec-09

Nov-09

Oct-09

Sep-09

Aug-09

Jul-09

Jun-09

May-09

Apr-09

Mar-09

Feb-09

Jan-09

-8.0%

Year-over-year change of IAE (%) 203


-3.0%

-9.0% Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11

The level of employment in the private sector reflected the most favorable change since September 2007

1.0%

-1.0%

-0.3% -2.3%

-2.7%

-7.0%

Source: Department of Labor and Human Resources, Establishment Survey

RESULTS

Click to Sector edit Employment Master text styles Private (YoY Change)

3.0%

1.1% -0.4%

-1.3%

-1.0%

-3.6%

-5.0%

-6.5%

204


The New Consumer Price Index of Puerto Rico impacts in a positive way our competitiveness

RESULTS

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The new CPI assigns the just price to goods and services in PR 22%

Old PR CPI

New PR CPI 17%

US CPI

12%

7%

2%

-3% Source: Puerto Rico Labor Department * Published September 10, 2010

205


Increase in confidence with respect to the economy and support for the plan from economists, analysts and businessmen

RESULTS

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“In view of the performance indicators outlined, the Council concludes that, overall, Puerto Rico‟s economy is entering a phase of stabilization, although there are still indicators that have not entered this phase of the cycle, especially the construction sector. Furthermore, we conclude that this phase of stablization is likely to continue for several months during the calendar year 2010 before the economy reaches and passes a turning point, prior to entering a sustained growth period.” Governor‟s Economic Council of Puerto Rico January 2010

206


Increase in confidence with respect to the economy and support for the plan from economists, analysts and businessmen

RESULTS

Click to edit Master text styles “these measures…support plans to reestablish fiscal solvency … it is a significant achievement that the Administration and the Legislature worked together to quickly produce a recovery plan” E. Raimes, E. Behr y B. Kurtter Moody‟s Investors Service March 2009

“Puerto Rico is taking the right steps to preserve its credit classification with a deficit reduction plan…” Horacio Aldrete Standard & Poor's March 2009

207


Increase in confidence with respect to the economy and support for the plan from economists, analysts and businessmen

RESULTS

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“On behalf of the Board of the Chamber of Commerce of Puerto Rico and myself, we wish to express our unconditional support to the implementation of the Strategic Model for a New Economy (MENE). We extend our unwavering solidarity with the Strategic Model for a New Economy. You can count on all our organization‟s resources to help implement all of the initiatives contained in this model.” Jorge Galliano President Puerto Rico Chamber of Commerce April 2009

208


Increase in confidence with respect to the economy and support for the plan from economists, analysts and businessmen

RESULTS

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“As a whole, we are beginning to feel better about the economy of Puerto Rico. Looking at the GNP estimates from the Puerto Rico Planning Board, the economy appears to be stabilizing.” Bain Slack Keefe, Bruyette & Woods June 2010

“Although implementation of the fiscal and economic stabilization plan is in progress, thus far key milestones have been met in accordance with the timeline established and, while conditions remain difficult, the administration and legislature appear to be addressing the situation pragmatically.” Kristin Stephens UBS-Wealth Management Research June 2010 209


Increase in confidence with respect to the economy and support for the plan from economists, analysts and businessmen

RESULTS

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" The Puerto Rican economy has experienced a dramatic turnaround after three years of uninterrupted economic decline. Consumer spending and manufacturing activity are leading the way, underpinned by improving labor market conditions and an uptick in international trade ." " The island‟s nascent recovery is being supported by an ambitious and aggressive fiscal plan implemented by the Puerto Rico government backed by the federal government‟s fiscal stabilization package instituted last year.” Scotiabank Group July 2010

210


Increase in confidence with respect to the economy and support for the plan from economists, analysts and businessmen

RESULTS

“With the Strategic Model for aMaster New Economy, Rico faced Click to edit textPuerto styles many of its past and present economic problems. In the US Department of Commerce we are working in close collaboration with our colleagues in the sectors of tourism, economic development, development of a broadband system, and through the National Export Initiative to guarantee that the island‟s economy continues a sound and sustainable upward path.” Rick Wade Principal Advisor / Deputy Secretary US Department of Commerce Rick Wade “Recently, the economic activity in the state of New York, the city of New York Asesor Principal del Secretario / Sub-Secretario Comercio de los EE.UU. and Puerto Rico seem to beDepartamento on a pathdeto recovery while the economic activity in New Jersey has remained essentially stable.” William C. Dudley President and Principal Executive Official Federal Reserve Bank of New York 211


Increase in confidence with respect to the economy and support for the plan from economists, analysts and businessmen

RESULTS

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“The rating outlook of the Commonwealth of Puerto Rico is negative, reflecting the weak funding status of the employees retirement system. While we acknowledge that the Commonwealth is working on a plan to address the retirement system problem, and that the current management has proactively and successfully addressed difficult financial decisions in the past 18 months…” Emily Raimes Public Finance Group Moody‟s Investors Service

212


Increase in confidence with respect to the economy and support for the plan from economists, analysts and businessmen

RESULTS

Click to edit Master text styles “Stabilization continues… the recently passed Housing Stimulus Act could go a long way to clearing up some obstacles.” “We believe that it [Housing Stimulus Act] has the potential over the next 10 months to clear the way for some potential economic growth” Bain Slack Keefe, Bruyette & Woods September 2010

213


Increase in confidence with respect to the economy and support for the plan from economists, analysts and businessmen

RESULTS

Click to edit Master text styles “I am full of admiration for the achievements of your governor, Luis Fortuño, your Cabinet, and the Legislature in the past 18 months. Your efforts have pulled Puerto Rico back from the brink of economic disaster in the worst economic climate the world has experienced in 80 years.” Hon. Maurice McTigue Vice President Distinguished Visiting Scholar Mercatus Center George Mason Univeristy September 2010

214


Increase in confidence with respect to the economy and support for the plan from economists, analysts and businessmen

RESULTS

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“Puerto Rico is following the right economic strategy. It‟s new tax policy stimulates economic growth, creating a balance between local production and production by multinational corporations. It has been proven that fiscal consolidation is achieved most successfully when spending is cut and taxes are reduced.” “Prof. Alberto Alesina, at Harvard‟s Economic Department, and his co-author have looked at such episodes around the globe and found those governments that undertake fiscal consolidation with spending cuts and low taxes have grown more successfully and create the jobs their economies need and then, ultimately, are the only source of budgetary resources. These are increasingly the successful strategies to follow, and Puerto Rico is onto that.” “With tax reform, Puerto Rico has just enormously improved its ability to attract businesses in a location-sense. Douglas J. Holtz-Eakin, Ph.D. President, American Action Forum Fromer Director of the Congressional Budget Office November 2010

215


Increase in confidence with respect to the economy and support for the plan from economists, analysts and businessmen

RESULTS

Click to edit Master text styles “Standard & Poor‟s Ratings Services has revised its outlook on its general obligation (GO) rating on the Commonwealth of Puerto Rico to positive from stable.” “The positive outlook is based on our view of the commonwealth‟s recent implementation of significant expenditure controls and revenue enhancement measures that we believe could help restore budget balance within the next two years. Standard and Poor‟s could raise the rating if over the upcoming two years in conjunction with an improvement in the commonwealth‟s economic performance, budget control remains in place and we believe there is significant progress toward achieving balance between ongoing revenues and expenditures as well as in addressing its unfunded retirement benefit obligations.” Standard & Poor‟s Rating Services November 29,2010 216


Increase in confidence with respect to the economy and support for the plan from economists, analysts and businessmen

RESULTS

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“… we are turning cautiously optimistic about the future for island's economy, which has been mired in recession for over four years. Drastic measures designed to improve the territory's business environment could attract considerable amounts of FDI, providing a much-needed boost to economic growth over the long term, although the territory still faces considerable challenges.” “The administration's ambitious plans combined with more positive economic data in recent months have encouraged us to revise up our real GNP growth forecasts modestly, and we are now penciling in average real GNP growth of 1.7% over the next five years, from 0.9% previously.”

Business Monitor International February 2011

217


Increase in confidence with respect to the economy and support for the plan from economists, analysts and businessmen

RESULTS

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“Standard & Poor‟s Ratings Services raised its general obligation (GO) rating on the Commonwealth of Puerto Rico to „BBB‟ from „BBB-‟ with a stable outlook. The upgrade is based on the commonwealth‟s recent revenue performance and continued efforts to achieve fiscal and budgetary balance.” “Governor Luis Fortuño‟s fiscal stabilization plan, which included an unprecedented 17% reduction in payroll expenditures, along with the recently approved revenue measures, is aimed at eliminating a decade-long trend of budget imbalances.” “Standard & Poor‟s could raise the rating if over the upcoming two years in conjunction with an improvement in the commonwealth‟s economic performance, budget Puerto Rico controls remain in place and we believe there is continued progress toward achieving balance between ongoing revenues and expenditures…” Horacio Aldrete Standard & Poor's Rating Services March 2009 218


Increase in confidence with respect to the economy and support for the plan from economists, analysts and businessmen

RESULTS

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“... since mid-2010 there have been promising signs: Recently released revisions suggest that job growth on the island, while still very weak, improved modestly since last summer. And most of the weakness since then has not been broad-based, but instead concentrated in construction and manufacturing. The unemployment rate has come down by a full percentage point since its peak.” “Looking ahead to the rest of 2011, I see grounds for cautious optimism. In particular, exports, which have been so important to the economic recovery on the mainland, have the potential to contribute to growth here in Puerto Rico as well.” “I am hopeful that we will soon be able to look back at 2010 and see not only the end of the island's long recession but also the beginning of an era of growth and prosperity for Puerto Rico.” William C. Dudley President and CEO Federal Reserve Bank of New York April 1st, 2011

219


Increase in confidence with respect to the economy and support for the plan from economists, analysts and businessmen

RESULTS

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“In many respects, Puerto Rico and Governor Fortuño are leading the way. The governor‟s bold leadership and aggressive reforms have slashed government payrolls … lowered corporate and personal tax rates … privatized some government services … streamlined the permitting process to get more projects moving more quickly … and initiated some smart public-private partnerships on infrastructure.” “As a result, Puerto Rico‟s deficit has been reduced to 11% of GDP from 44%, credit ratings on debt have been upgraded, business start-ups are growing, and unemployment is beginning to fall. Now, you may not agree with all of these reforms or other actions taken by the administration, but I believe they are moving the island in the right direction.” Thomas J. Donohue President and CEO US Chamber of Commerce April 2011 220


With help of all sectors Puerto Rico will begin to prosper…

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The Government cannot be the engine that drives our economy…

Government

NGOs

Private Sector

…we have to provide all the tools for the private sector and the third sector so that they become the drivers of the economic recovery

221


Summary: Growth, Competitiveness and Jobs

RESULTS

Click to edit Master text styles

We have a clear and comprehensive plan and are committed to reaching our goals

We have responded diligently through our Fiscal Reconstruction Plan and the Strategic Model for a New Economy aimed at addressing the current fiscal and economic challenges

We have stabilized the credit situation and there are several economic indicators that show signs of stabilization in the economy

Funds are being made available for strategic projects to develop a world-class physical infrastructure to stimulate the economy and reduce the operational costs of doing business

Laws are being passed and implemented to reform Puerto Rico‟s institutional and regulatory framework, to turn government into a facilitator and to strengthen the private sector

Continued improvements in key sectors, capital injections in infrastructure projects and a rise in consumer confidence should drive the performance of the economy in 2010 222


Click to edit Master text styles

June 2011

JosĂŠ R. PĂŠrez-Riera Secretary Department of Economic Development and Commerce (DEDC) Government of Puerto Rico


MENE