Economy of Puerto Rico

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Economy of Puerto Rico
Currency 1 United States dollar (US$) = 100 cents
Fiscal year 1 July - 30 June
Trade organisations CARICOM (observer)
Statistics
GDP ranking Not ranked
GDP $72.37 billion (2005 est.)
GDP growth 2.5% (2005 est.)
GDP per capita $20,500 (2006 est.)
GDP by sector agriculture: 1% industry: 45% services: 54% %
(2002 est.)
Inflation 5.2% (1999 est.)
Pop below poverty line 48%
Labour force 1.3 million (2000 est.)
Labour force by occupation agriculture 3% industry 20% services 77%
(2000 est.)
Unemployment 11% (2005)
Main industries pharmaceuticals, electronics, apparel, food products, tourism
Trading partners
Exports $46.9 billion (2001)
Main partners US 90.3%, UK 1.6%, Netherlands 1.4%, Dominican Republic 1.4%
(2004)
Imports $29.1 billion (2001)
Main partners US 55.0%, Ireland 23.7%, Japan 5.4% (2004)
Public finances
Public debt $36.7 billion
Tax 7.0%
Revenues N/A
Expenses N/A
Economic aid N/A
edit

The Economy of Puerto Rico is one of the most dynamic in the Caribbean region. A diverse industrial sector has surpassed agriculture as the primary locus of economic activity and income. Encouraged by duty-free access to the US and by tax incentives, US firms have invested heavily in Puerto Rico since the 1950s. US minimum wage laws apply. Sugar production has lost out to dairy production and other livestock products as the main source of income in the agricultural sector. Tourism has traditionally been an important source of income for the island, with estimated arrivals of nearly 5 million tourists in 1999.

Contents

[edit] History

[edit] Spanish Colonialism

In the early 16th Century, Juan Ponce de León and the Conquistadores were led by the Taínos to areas enriched with gold. This discovery encouraged the Spanish Crown to create a gold mining industry and attracted many settlers to the island who wanted to strike it rich. In 1521, concerned about threats from European enemies, Spain began constructing massive defenses around the city of San Juan. The strengthening of El Morro Castle, San Cristóbal, and San Gerónimo forts as well as the city walls were the stronghold elements of these successful defenses. The Spanish Crown allowed the enslavement of the native Taínos for the construction of these fortifications and for the further development of the gold mining industry. Gold mining became the first modern economy of Puerto Rico. Many Taínos died as a consequence of the harsh treatment that they were subject to. This eventually led to the importation of African slaves as a new source of manpower. The black slaves were forced to work the mines whose gold was sent to Spain.

When the Spaniards found gold in Puerto Rico, they established farms for cattle, grain, fruits, and vegetables to supply mining camps. These farms later grew into plantations for cash crops of ginger, sugarcane, tobacco, and coffee. The settlers who were farmers, began what was to become the agricultural economy of the island. Ginger cultivation was to become the main agricultural product, helping to establish a thriving economy until 1570 when the gold mines were declared depleted and no longer produced the precious metal. After gold mining came to an end in the island, The Spanish Crown basically ignored Puerto Rico by changing the routes of the west to the north. The island became mainly a garrison for the ships that would pass on their way to or from the other and richer colonies. Therefore, the commercial trade between Puerto Rico and Spain was greatly affected and since commercial trade with other countries was prohibited the islands economy became precarious. During this period the merchants in the island resorted to contraband, trading with ships from England, Netherlands or whomever would trade for the main produce of the island, which at that time was ginger. As much as 10 or 11 years would pass before Spain would renew it commercial links with Puerto Rico

In 1493, Christopher Columbus, on his second voyage, introduced the ancestors of the Pure Puerto Rican Paso Finos to the New World. During this and subsequent trips by Columbus and other conquistadors, Andalusians, Barbs and Spanish Jennets were brought into what is now Puerto Rico. Spanish land owners in Puerto Rico used the Paso Fino in the plantations because of their endurance and the comfortable ride they provided. Breeding and exporting of the Paso Fino horses became an important source of income for the struggling economy of Puerto Rico.

From the 16th to the 19th century Puerto Rico was characterized primarily by underpopulation, poverty and neglect by Spain. Spanish law was changed to allow unrestricted trade with the neighbors and the Spanish Crown approved the Royal Decree of Graces of 1815, which promised free land for the Spanish citizens who were willing to establish themselves in Puerto Rico and develop its lands. Puerto Rico had basically remained economically undeveloped until 1830, when the immigrants from the Spanish provinces of Catalonia, Mallorca and the Canary Islands began to arrive and gradually develop the sugarcane, coffee, and tobacco plantations.

The French who fled St. Dominique (what is now Haiti) from the slave uprisings and settled in the island bought with them the knowledge and expertise to develop the islands sugar industry. This led the way to the development of the Puerto Rican Rum industries which would have a positive impact on the island.

Even though sugar became the backbone of Puerto Rico's economy, coffee was close behind. Out of the three main groups which immigrated from Spain, the Mallorcans were the ones who helped develop the islands early coffee industry. Many established coffee plantations in towns such as Lares however, they employed what was to become known as circular migration. For the Mallorcan immigrants the coffee economy of Puerto Rico was a mechanism for capital accumulation and instead of investing their profits in the economy of Puerto Rico, they sent their earnings to their families in Spain.

Early Yauco Coffee Plantation (Pre-1920)
Early Yauco Coffee Plantation (Pre-1920)

By 1850, Spain had lost all but two of its colonies in the New World, Puerto Rico and Cuba. The Spanish Crown modified the Decree of 1815 to include those European of non-Spanish origin to settle and develop the lands of both islands. Waves of Corsicans, French, Irish and Germans immigrated to Puerto Rico and contributed to the creation of a triving agricultural economy. Of this group the Corsicans converted the islands coffee industry into one of the best in the world. Unlike the Mallorcans, the Corsicans settled with their families in the island and invested their profits in Puerto Rico's economy. The German immigrants established many importing and exporting firms in San Juan the islands capital.

Despite the fact that the economy of the island had greatly improved, the vast majority of the islanders lived in poverty. The Spanish Crown needed funds to subsidize its troops in an effort to regain control of the Dominican Republic and therefore, increased the tariffs and taxes on most import and export goods. As a consequence Puerto Rico once more began to suffer a severe economic crisis.

[edit] United States control

Sugar cane plantation
Sugar cane plantation

The economy of the island became dependent on that of the United States after the Spanish-American War of 1898. Companies from the United States took over the operations of the main agricultural entities of the island. An example of this is the American Tobacco Co. which took control of the tobacco industry of the island. On August 8, 1899, Hurricane San Ciriaco, with winds of over 100 miles per hour, struck Puerto Rico and on August 22 another hurricane followed. These events practically destroyed the island's agricultural industry, causing the mass immigration of Puerto Rican laborers to other parts of the world and a sudden economic crisis. Another event which further deteriorated Puerto Rico's economy was the Great Depression of the 1930's.

In 1945, U.S. President Franklin D. Roosevelt launched the Puerto Rican Reconstruction Administration, which provided agricultural development, public works, and electrification of the island.

In the late 1940's a series of projects called Operation Bootstrap encouraged, using tax exemptions, the establishment of factories. Thus manufacturing replaced agriculture as the main industry.

The economic conditions in Puerto Rico have improved dramatically since the Great Depression due to external investment in capital-intensive industry such as petrochemicals, pharmaceuticals, and technology. Once the beneficiary of special tax treatment from the U.S. government, today local industries must compete with those in more economically depressed parts of the world where wages are not subject to U.S. minimum wage legislation. In recent years, some U.S. and foreign owned factories have moved to lower wage countries in Latin America and Asia. Puerto Rico is subject to U.S. trade laws and restrictions.

[edit] Current Economic Overview

Tourism is an important component of the Puerto Rican economy supplying an approximate $1.8 billion. In 1999 an estimated 5 million tourists visited the island, most from the United States. Nearly a third of these are cruise ship passengers. An increase in hotel registrations, which has been observed since 1998, and the construction of new hotels and the Puerto Rico Convention Center are indicators of the current strength of the tourism industry.

The following are significant public and private projects (finished, planned or under construction) which are aimed at increasing the tourism industry in Puerto Rico:

Puerto Ricans had a per capita GDP estimate of $17,700 for 2004 [1] , which demonstrates a growth over the $14,412 level measured in the 2002 Current Population Survey by the Puerto Rican Legal Defense and Education Fund [2]. In that survey, Puerto Ricans have a 48.2% poverty rate. By comparison, the poorest State of the Union, Mississippi, had a median level of $21,587, according to the U.S. Census Bureau’s Current Population Survey, 2002 to 2004 Annual Social and Economic Supplements [3]. Since 1952, the gap between Puerto Rico's per capita income and US national levels has essentially remained unchanged---one third the US national average and roughly half that of the poorest state.

On November 15, 2006 the Government of Puerto Rico implemented a 5.5% sales tax. An optional 1-1.5% municipal tax had been in effect since May 2006.

[edit] Other statistics

  • Industrial production growth rate: NA%
  • Household income or consumption by percentage share:
  • lowest 10%: NA%
  • highest 10%: NA%
  • Budget:
  • revenues: $8.1 billion Central Government, $25 Billion with Public Corporations
  • expenditures: $9.6 billion Central Government
  • Electricity
  • production: 17,765 GWh
  • consumption: 16,521 GWh
  • exports: 0 kWh
  • imports: 0 kWh (1998)
  • Electricity - production by source:
  • fossil fuel: 98.06%
  • hydro: 1.94%
  • nuclear: 0%
  • other: 0% (1998)

[edit] See also

[edit] External links

[edit] Notes

  1. ^ CIA - The World Factbook -- Puerto Rico.
  2. ^ PRLDEF.
  3. ^ U.S. Census - Median Family Income.
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