In 2016, Puerto Rico was declared bankrupt. The US island territory had more than $70bn in debt and over $55bn in unfunded pension liabilities. But a year after a ‘plan of adjustment’ to restructure its debt became effective in March 2022, the hurricane-prone Caribbean island is looking to the future. 

Pedro Pierluisi, who has served as Puerto Rico’s governor since January 2021, tells fDi that as fiscal prudence continues there is “an incredible opportunity” for Puerto Rico to make use of roughly $50bn of federal funding allocated to repair and upgrade its digital, transportation and energy infrastructure.

“We’re being very careful because we don’t want to revisit that embarrassing scenario,” he says, adding that fiscally the island is in “a much better position” now. Projects amounting to $30bn have already been allocated through the US Federal Emergency Management Agency to aid Puerto Rico’s reconstruction after the devastating Hurricane Maria in 2017, which will include money for highways, parks, hospitals, educational institutions, water and electricity infrastructure. 

“[These funds] serve as a cushion for our economy and create jobs,” says Mr Pierluisi, who adds that Puerto Rico has a unique resilience, given its experience of managing and responding to natural disasters. Through the Bipartisan Infrastructure Law, Puerto Rico will also receive a further $900m to rebuild roads and highways over the next five years, as well as funds for bridges ($225m), transportation ($456m) and broadband ($100m).

Renewables and manufacturing

The Puerto Rican government is also rebuilding the island’s energy grid, which receives the majority of its electricity from power plants and generators run on imported fossil fuels. Mr Pierluisi says that Puerto Rico is becoming a test bed for renewables, adding that solar systems with batteries are being installed at a rapid pace across the island. The government aims to have renewables make up 40% of its electricity generation needs by 2025, up from 3% in 2022.

Mr Pierluisi also notes that the island is hoping to find a niche in the semiconductor sector and make use of the $52bn of federal funding on offer through the CHIPS Act. “Puerto Rico is well known for its ability to optimise the manufacturing process,” he says.

His hope is to make Puerto Rico the “technology hub for the US in the Caribbean”, noting the island’s strengths in the medical device production and the aeronautics field. Companies including Honeywell, Pratt and Whitney and Lockheed Martin all have operations on the island.

Tourism boom

Puerto Rico kept its borders open to US travellers throughout the Covid-19 pandemic, which helped build momentum for the “tourism boom” currently underway in the Caribbean island territory. “Puerto Rico was viewed in the midst of the pandemic as a safe destination for travel,” says Mr Pierluisi. “Once [people] came, they kept coming back.” 

In 2022, about $8.9bn in revenue was generated by travel and tourism in Puerto Rico, an increase of 39% on the previous high in 2019, according to Discover Puerto Rico. Arrivals at the island’s international airport in 2022 also increased year-on-year by 6.5% to reach more than 5.1 million people.

This tourism boom helped the island to convince some of its wealthier visitors to relocate through its incentive programme, known as Act 60. Eligible individuals (those who spend at least 183 days on the island per year and own property there) do not pay any capital gains tax on passive income or federal taxes on income sourced from Puerto Rico.

Mr Pierluisi says that “hundreds” of them have set up companies to export services from Puerto Rico, which the island taxes at just 4%. “It’s a very attractive tax rate,” he adds.

This article first appeared in the June/July 2023 print edition of fDi Intelligence.