Country Overview

Geographic Location and Demography

Puerto Rico is the easternmost of the Greater Antilles (18 15 N, 66 30 W), and the fourth largest island in the Caribbean after Cuba, Hispaniola (which comprises the Dominican Republic and Haiti), and Jamaica. The Island is located at the crossroads between North and South America, at just 3.5 hours airtime from New York, 60 minutes from Caracas, and at only 4 days sailing from Atlantic ports in the U.S. and ports in the Gulf of Mexico. The Puerto Rican territory includes other three small islands, Vieques, Culebra and Mona, as well as numerous islets.

Based on the latest U. S. Census, the population of Puerto Rico is roughly three million seven hundred twenty six thousand (3,725,789) people. The Island, with an area of 3,435 square miles (9,000 sq. km)-110 miles long by 39 miles wide-has a mountainous interior and is surrounded by a wide coastal plain where the majority of the population lives. Rainfall averages 69 inches (175 cm) per year and year-around temperatures range from 74°F (23°C) in the winter to 81°F (27°C) in the summer.

Relationship with the United States

Puerto Rico was discovered by Christopher Columbus in 1493 and shortly thereafter the island was conquered and settled by the Spaniards. It remained a Spanish possession for four centuries. Puerto Rico came under United States sovereignty pursuant to the Treaty of Paris, signed on December 10, 1898, which ended the Spanish-American War. Puerto Ricans have been citizens of the United States since 1917. In 1950, after a long evolution toward greater self-government for Puerto Rico, the Congress of the United States enacted Public Law 600, which is “in the nature of a compact” and which became effective upon its acceptance by the electorate of Puerto Rico. It provides that those sections of existing law which defined the political, economic, and fiscal relationship between Puerto Rico and the United States would remain in full force. It also authorized the people of Puerto Rico to draft and adopt their own Constitution. The Constitution was drafted by a popularly elected constitutional convention, overwhelmingly approved in a special referendum by the people of Puerto Rico and approved by the United States Congress and the President of the United States, becoming effective upon proclamation of the Governor of Puerto Rico on July 25, 1952. Puerto Rico’s relationship with the United States is referred to herein as commonwealth status.

The United States and the Commonwealth of Puerto Rico (the “Commonwealth”) share a common defense, market, and currency. The Commonwealth exercises virtually the same control over its internal affairs as do the 50 states. It differs from the states, however, in its relationship with the federal government. The people of Puerto Rico are citizens of the United States but do not vote in national elections. They are represented in Congress by a Resident Commissioner who has a voice in the House of Representatives but no vote. Most federal taxes, except those such as Social Security taxes which are imposed by mutual consent, are not levied in Puerto Rico. No federal income tax is collected from Puerto Rico residents on income earned in Puerto Rico, except for certain federal employees who are subject to taxes on their salaries. The official languages of Puerto Rico are Spanish and English.

Governmental Structure

The Constitution of the Commonwealth provides for the separation of powers of the executive, legislative, and judicial branches of government. The Governor is elected every four years. The Legislative Assembly consists of a Senate and a House of Representatives, the members of which are elected for four-year terms. The highest court within the local jurisdiction is the Supreme Court of Puerto Rico.

Puerto Rico constitutes a District in the Federal Judiciary and has its own United States District Court. Decisions of this court may be appealed to the United States Court of Appeals for the First Circuit and from there to the Supreme Court of the United States.

Governmental responsibilities assumed by the central government of the Commonwealth are similar in nature to those of the various state governments. In addition, the central government assumes responsibility for local police and fire protection, education, public health and welfare programs, and economic development.

Puerto Rico Economic Facts

Puerto Rico has changed from an agricultural economy, based primarily on sugar, tobacco, and coffee products, to a thriving modern industrial and services oriented economy. In 1940, agriculture represented 33.7 percent of total net income, while manufacturing had 12.8 percent of the total. Nevertheless, in 2002 agriculture composed 1.0 percent of total net income while manufacturing made up 45.7 percent of the total. The financial sector is the second largest sector, with 15.0 percent of total net income. The transformation towards the industrial and services sectors has taken place in a period of over four decades. During this time structural changes have also occurred, as is the case of the manufacturing sector. This sector gradually changed from one of labor-intensive industries in the first stages of development to one of capital-intensive industries. In the last ten years this structural change intensified with the significant reduction of labor-intensive industries and the development not only of capital-intensive industries but also of knowledge intensive industries, such as biotechnology.

The new century poses new challenges that need to be addressed with innovative strategies, which would allow the economy to evolve and compete in today’s globalized economy. The country has enjoyed fiscal autonomy with respect to the United States since the creation of the commonwealth, which implies that residents of Puerto Rico do not pay federal income taxes, and the local authorities have discretion to design tax incentives to attract foreign direct investment. This major tool has allowed different administrations to develop the manufacturing and services sectors of the economy in a fairly short amount of time, and adapt it to the different global challenges it has faced along the last half a century. In addition, the authorities have begun to implement a more efficient system to deal with regulations and permits, helping to the development of new businesses and to the entrepreneurial climate of the country.

Puerto Rico does not only enjoy fiscal advantages, but also its physical infrastructure and its human capital are highly developed. The country has a highly developed highway, ports and airports systems which allow a fast movement of merchandises across and beyond the Island. It has also a state-of-art communication network. Moreover, its location in the Caribbean makes the country a perfect place to develop an even larger infrastructure for a trans-shipment port with its respective value-added zones. In terms of human capital, the Island has a highly sophisticated and bilingual workforce, ready to face the continuous transformation of the economic environment. For all these reasons, the private sector with the help of the public sector has developed in the country five clusters: pharmaceutical, biotechnology, medical devices, communications and information technology, and health services. These clusters are helping Puerto Rico to deal more efficiently with all the new upcoming challenges.

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