Vision of prosperity in Puerto Rico is tempered by reality

The plans are grand; the ads are slick. Puerto Rico is ``the shining star of the Caribbean'' - a friendly home to business, an island that can provide technology to a region that needs a boost into the first world, and a fantastic vacation spot.

That vision of the island is tempered by reality. Puerto Ricans have suffered hard times with a high unemployment rate, a decline in investments, and increased dependence on federal aid. Not far from the glamour of San Juan's beach-area resorts, there are towns that reflect third-world poverty.

Although well off in comparison with some of its Caribbean neighbors, Puerto Rico has a nearly 18 percent unemployment rate. Even worse, the labor participation rate for those of working age is only about 42 percent. Nearly two-thirds of all families received federal transfer payments, or food stamps.

All the more reason for the current administration in Puerto Rico to be a firm believer in its vision, say observers here. Dependence on US investment and aid alone must be reduced, and Puerto Rico must diversify its economy.

``We have regained the direction of economic growth,'' says Gov. Rafael Hern'andez Col'on in an interview. Last year, he points out, there was a 4 percent growth rate, coming from a ``practically static'' economy.

Unemployment, though still high, is down from 23 percent in 1983. Puerto Rico has, Governor Hern'andez Col'on says, reached a position of leadership in the Caribbean community. The twin-plant program, in which companies have manufacturing plants in Puerto Rico and another Caribbean island, has spurred over $20 million in investments, he says, and has led to the creation of 1,000 new jobs.

These visions are heady stuff in a land where the unemployment rate has not gone below 10 percent in 35 years. But while economic indicators show promise, there are political realities that make continued progress daunting.

The keystone of Puerto Rico's economic future rests on a provision of the US tax code titled Section 936, which allows companies operating in Puerto Rico to be exempt from taxes on income they make and keep on the island. But as competition from the Far East, and even from other Caribbean nations, takes away some of Puerto Rico's advantages, the government here has looked for ways to shore up the commonwealth's position.

The shared production plan - or twin plant concept - is one of those ways. It puts Puerto Rico in the role the US played for them in the '50s when Operation Bootstrap was started to boost the island's economy. With its more developed manufacturing base and technological skills, Puerto Rico works with other Caribbean countries, who do the lesser-skilled, labor-intensive jobs.

The idea is not new, says Antonio Colorado, head of Puerto Rico's economic development administration. Twin plants have been in existence in the region for at least 10 years. But now the government encourages them by using Section 936 funds in the Government Development Bank to back such projects.

With 12 companies in the program, investments have risen by more than $23 million and jobs have been saved and added in Puerto Rico and neighboring islands, Mr. Colorado says. The potential could lead to 10,000 new jobs in the Caribbean Basin, he says.

The plan has enthusiastic backers here. ``Puerto Rico needs to find a new economic model to work from - there are new trends in the world economy,'' says Jos'e Alberto Morales, president of Sacred Heart University in San Juan and a former member of the Hern'andez Col'on administration. He touts the idea of Puerto Rico becoming a leader in a regional economy.

``We are a presence in the middle of the region, and it is our own stake,'' he says, adding that some countries here chafe a bit at what can be perceived of as a paternalistic attitude.

But the aggressive program has also raised some eyebrows. Among some statehooders, it looks suspiciously like Puerto Rico is becoming a player in the international arena, independent from the federal government. The State Department, while encouraging new investments in Puerto Rico from other countries, tightened the reins somewhat when Puerto Rico proposed a special tax arrangement with Japan.

And there are other objections. Some lesser-developed Caribbean countries complain that they don't merely want the labor-intensive plants - they want a crack at the high-tech development also.

But proponents here say it is the best way for the fragile economy of the region to get off the ground and the Puerto Rican initiative could be more successful than the Caribbean Basin Initiative proposed by the Reagan administration several years ago. Economist Jos'e J. Villamil agrees that Puerto Rico ought to be a provider of services and technology for the region. And he further says that the island ought to continue to diversify its economy and seek investments from Asia, Europe, and Latin America.

Indeed, Hern'andez Col'on has traveled throughout the world seeking investment in the commonwealth. Only recently did he run into the stumbling block from the US State Department. While some here openly accuse the State Department of acting on political and not economic considerations, others have adopted a calmer tone.

``We are quite pleased to see a commitment on the part of the federal government to assist Puerto Rico in attracting foreign investment, particularly from Japan,'' says Richard Copaken, a Washington lawyer who advises the Puerto Rican administration. He refers to a letter from Secretary of State George Shultz that vetoed the Puerto Rican proposal, but he also hinted that there might be alternative ways to resolve the matter. ``We will pursue alternative measures that will encourage foreign investment.''

Local entrepreneurship has also been fostered in Puerto Rico in recent years, and Colorado notes that half of the businesses that his department helped last year were local businesses, for the first time ever.

Tourism has also been greatly promoted, and this season had been on its way to being the best season ever until the tragic fire at the Dupont Plaza Hotel on New Year's Eve. Initial reports have been that the impact of the fire will not greatly weaken the tourism boom.

In the past 18 months, says Arnold Benus of the island's hotel association, $200 million has been invested in hotel properties. But some mainland tourists complain about the high crime and what they say is a lack of good service on the island.

``We definitely want to improve the hotels, but we also want to improve the total product,'' says Mr. Benus. San Juan is the regional hub for both Eastern and American Airlines. In addition to the US market, Puerto Rico is seeking European and even Asian visitors.

``Puerto Rico is, for some reason, looked upon by most [in the states] as the West Side Story image,'' Benus says. ``That couldn't be further from the truth. We are Ra'ul Julia, Jos'e Ferrer, Pablo Casals.'' Messrs. Julia and Ferrer were born in Puerto Rico, and the Spanish-born Mr. Casals held music festivals here.

Still, says Mr. Villamil, the government has a large task in front of it.

The infrastructure in the country, including roads and sewage systems needs a lot of work. There is a shortage of housing. Education needs to be improved. Hern'andez Col'on says these are all part of his agenda.