Tourism in Puerto Rico
Team Leader: Kelsey Lai
Analysts: Suyeon Han, Ryan McQuaig, Jiya Hai, Mackenzy Metcalfe, Jun Park
Economic Overview
Puerto Rico’s economy has been in recession since 2004.[i] The Caribbean island’s fiscal crisis can largely be attributed to the out-phasing of Section 936, the tax policy that granted the U.S. corporations tax exemptions from income originating from U.S. Commonwealth; as well as a steep rise in the price of oil, which generates most of the island's electricity.[ii][iii]
Furthermore, diminished job opportunities prompted a sharp rise in emigration, as many Puerto Ricans sought job prospects on the mainland U.S.[iv] Within the past decade, unemployment rate reached averaged 39.02 percent from 1990 until 2018, reaching an all-time high of 44.70 percent in March of 2006 and a record low of 33.50 percent in September of 2014. The application of U.S. minimum wage laws in Puerto Rico impedes expansion of job opportunities. Puerto Rico’s Gross Domestic Product (GDP) per capita when adjusted by 2016 purchasing power parity (PPP) is 25,240 PPP dollars; which is just less than half of the U.S.’s at 60,200 PPP dollars.[v]
Closing the budget deficit while restoring economic growth and employment remain the central task of the Puerto Rican government. Especially, since tourism accounts for about 10 percent of the GDP, the government sees an opportunity in the industry to rejuvenate the damaged economy post Hurricane Maria.[vi]
Financial State
Puerto Rico’s economy has been materially impacted by high levels of debt relative to the output from their labour market. In May 2017, Puerto Rico was forced to restructure about US$120 billion in debt and pension obligations in bankruptcy court to mend the ruptured credit markets.[vii] Recent significant updates emerged in August from the Financial Oversight and Management Board announcing they had reached an agreement on restructuring US$17.5 billion their senior and subordinate Cofina debt.[viii] The deal will reduce the debt burden by an estimated 32 percent which would save Puerto Rico close to the same amount in future debt servicing.[ix]
The economic output and debt crisis was further impacted by the devastating destruction from Hurricane Maria in September 2017 which discouraged tourism in the region. A report by the World Travel and Tourism Council forecasted the tourism industry would account for 8.4 percent of GDP in 2017.[x] After the hurricane, the actual revenue came in US$1.2 billion lower at US$7.2 billion – a net decrease of 1.2 percent of GDP.[xi] Tourism is a key source of tax revenue and economic activity, and with the estimated recovery cost of over US$139 billion,[xii] it is crucial for Puerto Rico to settle the negotiations on debt agreements to resurge its depilated capital markets and fractured economy.
Tourism Industry Outlook
Historically, Puerto Rico’s tourism industry has played an enormous role in its economy, comprising 10 percent of its GDP and being a key source of job creation.[xiii] [xiv] Its peak tourism season is between mid-December and early April.[xv] As part of the North American country, Puerto Rico experiences a great proportion of tourists from the United States.[xvi] In 2016, the World Travel and Tourism Council reported that tourism garnered 8 billion USD for the island, employing 68,000 people and fielding up to 12 million tourists.[xvii]
Unfortunately, Hurricane Maria had a noticeably detrimental impact on the industry. In the first half of 2018, travel-related searches for the island dropped 30 percent, and Puerto Rico experienced a corresponding dip in tourism.[xviii] However, recent months have seen the island take positive steps toward boosting its tourism. A new tourism board has created a trip concierge mobile app and a business intelligence tool to further benefit the industry.[xix] Six months after Maria, the Puerto Rico Tourism Company (PRTC) announced full capacities of the island’s hotels and continue to encourage tourists to support the island by visiting.[xx] Unlike other industries, tourism can be effectively bolstered by visitor dollars; PRTC’s executive director calls the island’s tourism the “one sector” that can quickly “bounce back.”[xxi] Discover Puerto Rico, a nonprofit organization, has been newly created to compile data on local tourism.[xxii]
With much recovery to go, some hope may be found in the island having over 100 flights coming in daily and 1.9 billion USD invested in tourism development projects.[xxiii] 12,000 working hotel rooms and 4000 restaurants were back in business by February, representing 80 percent of Puerto Rico’s total hotels and restaurants.[xxiv] In tourist areas, power has been restored and roads cleared.[xxv]
Political Stability
The Commonwealth Puerto Rico is an island 1000 miles off the coast of Miami. It is neither sovereign nor a U.S. state, as it is a self-governing commonwealth in political association with the United States of America.[xxvi] Puerto Rico acts as a territory of the United States, meaning that while Puerto Ricans have U.S. citizenship, they are not afforded all of the rights and liberties usually associated with that title. They are under the authority of the U.S. president and elect one member to the U.S. House of Representatives every four years who is eligible to vote in committees but not in ‘full floor’ house votes.[xxvii] The country instead has its own House of Representatives, consisting of an Executive and a Legislature and generally controls its own internal affairs.[xxviii] In contrast, Puerto Rico’s judiciary is beneath the U.S. Supreme Court, Puerto Ricans are ineligible to vote in U.S. elections for the President or Congress and the U.S. controls their international trade, foreign relations, military decisions, treaties, infrastructure, and social security.[xxix] Puerto Rico does however have its own constitution, but only because the document was ratified by the United States Congress in 1952.[xxx]
The Global Economy defines political stability as the likelihood that the government will be destabilized or overthrown by unconstitutional or violent means.[xxxi] According to The Global Economy, the political stability of Puerto Rico has remained relatively consistent in the last few years, stabilizing around 0.80 on their scale out of 1.0 for the past three years.[xxxii] Though the country may be suffering economically and financially since devastation that followed Hurricane Maria over one year ago, Puerto Rico has remained a functioning state through the disaster. Much of this stability is due to the fact that the country is a territory of the United States, as they have received some assistance from the U.S. government; however, the scope of the assistance has been heavily criticized.
Foreign Relations: Puerto Rico - United States, Kelsey Lai
Puerto Rico has always shared a tenuous relationship with the United States, but in light of recent crises that the country has experienced including Puerto Rico’s debt crisis and Hurricane Maria, these tensions have increased. Five non-binding referendums were held in Puerto Rico’s history to determine whether the country should pursue statehood.[xxxiii] The last referendum, held in June 2017, was in favour of statehood by a margin of 97 percent.[xxxiv] However, it is unlikely that Puerto Rico will become a state anytime soon since the U.S. Congress hold final authorization for statehood.[xxxv] If Puerto Rico were to become a full state, then the country could exercise greater autonomy to enforce its own laws in areas such as trade, commerce, Social Security, and criminal law.[xxxvi] The shared authority system has been described as dysfunctional and Puerto Ricans have complained that it reduces the state to a dependent colony.[xxxvii]
Past U.S. Presidents George W. Bush and Barack Obama have supported statehood, if Puerto Ricans were in favour of the change.[xxxviii] Current President Donald Trump even advocated for statehood during his 2016 presidential campaign.[xxxix] However, in the immediate aftermath of Hurricane Maria, President Trump clashed with Puerto Rican politicians and citizens over complaints that the federal government's response was inadequate.[xl] A series of tweets stated that Puerto Rico’s infrastructure and electric problems post-hurricane were “already a disaster” and blamed slow recovery on the “total lack of accountability” of Puerto Ricans.[xli] On the one-year anniversary of Hurricane Maria, Puerto Rico Governor Ricardo Rosselló asked Trump to consider statehood and for State Department to reconsider a case in the Inter-American Commission on Human Rights (IACHR) over the federal government’s obligation to Puerto Rican citizens and to the political status of the state.[xlii] These requests are likely to be denied and the U.S. - Puerto Rico relationship will become further strained.
Hurricane Maria
Hurricane Maria made land fall in September 2017 and has wreaked havoc on the island of Puerto Rico. The hurricane has taken the lives of 2,975 people, however, this number is still contested as observers such as World Vision predicts that the numbers might be as high as 4,600.[xliii] Hurricane Maria was also recorded as one of the most devastating hurricanes to make landfall on U.S. soil as it displaced more than 300,000 people along with knocking out the national power grid in addition to destroying key infrastructure facilities such as roads, hospitals, water treatment plants, etc.[xliv] Puerto Rico faces a dire economic upheaval as the country has already declared bankruptcy in July of 2017 as they were unable to pay off the $74 billion USD that they owed to creditors, which will be compounded by the estimated damages is estimated to cost the country around $90 billion USD.[xlv]
Puerto Rico has requested $94 billion dollars in immediate aid to the United States Senate; however, the Trump administration was slow to react to the situation and has only granted $16 billion USD in aid, only a fraction of what the country needs to recover.[xlvi] In addition to the agonizingly slow financial aid coming into the country, the physical recovery process has been equally if not even slower. Even a year after the hurricane, only temporary generators power the fragile power grid, which locals report frequent power cuts, in addition to the shortage of food and vital medical supplies that continues to affect the country.[xlvii] It is reported that Puerto Rico’s two main industries, agriculture and tourism has taken the most damage as more than half the country (51%) reports that they will be unable to find or maintain their jobs, deepening the economic disparity within the country.[xlviii]
[i] “Real GDP growth,” International Monetary Funds, 2018, accessed November 8, 2018,
https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/ADVEC/WEOWORLD.
[ii] Scott Greenberg and Gavin Ekins, “Tax Policy Helped Create Puerto Rico's Fiscal Crisis,” Tax
Foundation, October 31, 2017, accessed November 8, 2018, https://taxfoundation.org/tax-policy-helped-create-puerto-rico-s-fiscal-crisis/.
[iii] “The World Factbook: Puerto Rico," Central Intelligence Agency, October 24, 2018, accessed
November 8, 2018, https://www.cia.gov/library/publications/the-world-factbook/geos/rq.html.
[iv] “Puerto Rico Employment Rate 1990-2018,” Trading Economics, accessed November 8, 2018,
https://tradingeconomics.com/puerto-rico/employment-rate.
[v] “GNI per Capita, PPP (current International $),” The World Bank, accessed November 8, 2018,
https://data.worldbank.org/indicator/NY.GNP.PCAP.PP.CD.
[vi] "The World Factbook: Puerto Rico," Central Intelligence Agency, October 24, 2018, accessed
November 8, 2018, https://www.cia.gov/library/publications/the-world-factbook/geos/rq.html.
[vii] Mary Childs, “Puerto Rico Reaches Agreement on Cofina Debt,” Barrons, August 10, 2018, accessed November 8, 2018, https://www.barrons.com/articles/puerto-rico-reaches-agreement-on-cofina-debt-1533920320.
[viii] Ibid.
[ix] Ibid.
[x] “Travel & Tourism: Economic Impact 2017
Puerto Rico,” World Travel & Tourism Council, March 2017, accessed November 8, 2018, https://www.wttc.org/-/media/files/reports/economic-impact-research/countries-2017/puertorico2017.pdf?mod=article_inline.
[xi] “Transformation and Innovation in the Wake of Devastation: An Economic and Disaster Recovery Plan for Puerto Rico,” Central Office for Recovery, Reconstruction, and Resiliency, August 8, 2018, accessed November 8, 2018, http://www.p3.pr.gov/assets/pr-transformation-innovation-plan-congressional-submission-080818.pdf?mod=article_inline.
[xii] “Recovery and Reconstruction Plan to Congress,” Central Office for Recovery, Reconstruction, and Resiliency, August 8, 2018, accessed November 8, 2018, “http://www.p3.pr.gov/assets/crro-submits-recovery-reconstruction-plan-congress.pdf%20?mod=article_inline.
[xiii] Angel L, Ruiz, "Tourism and the Economy of Puerto Rico: An Input-output Approach,” Tourism Management, no. 1 (1985): 61-65, accessed November 9, 2018, doi:10.1016/0261-5177(85)90057-3.
[xiv] Donald, Wood, "Puerto Rico Tourism Is Booming,” TravelPulse, April 3, 2018, accessed November 9, 2018, https://www.travelpulse.com/news/destinations/puerto-rico-tourism-is-booming.html.
[xv] Matt, Minich, "For Travellers, Puerto Rico Remains a Tropical Charmer.,” The Globe and Mail, October 19, 2018, accessed November 9, 2018, https://www.theglobeandmail.com/life/travel/article-for-travellers-puerto-rico-remains-a-tropical-charmer/.
[xvi] Donald, Wood, "Puerto Rico Tourism Is Booming,” TravelPulse, April 3, 2018, accessed November 9, 2018, https://www.travelpulse.com/news/destinations/puerto-rico-tourism-is-booming.html.
[xvii] "Puerto Rico: Tourism, Trade, and Taxes,” Internations, accessed November 9, 2018, https://www.internations.org/puerto-rico-expats/guide/working-in-puerto-rico-15628/puerto-rico-tourism-trade-and-taxes-2.
[xviii] Sean, O’Neill, "Puerto Rico Takes New Digital Steps to Enhance Tourism Efforts,” Skift, October 8, 2018, accessed November 9, 2018, https://skift.com/2018/10/08/puerto-rico-takes-new-digital-steps-to-enhance-tourism-efforts.
[xix] Ibid.
[xx] Donald, Wood, "Puerto Rico Tourism Is Booming,” TravelPulse, April 3, 2018, accessed November 9, 2018, https://www.travelpulse.com/news/destinations/puerto-rico-tourism-is-booming.html.
[xxi] Alexandra, Talty. "Visiting Puerto Rico After Hurricane Maria: What You Need To Know,” Forbes, February 13, 2018, accessed November 9, 2018, https://www.forbes.com/sites/alexandratalty/2018/02/13/visiting-puerto-rico-after-hurricane-maria-what-you-need-to-know/#18a7bea659d1.
[xxii] Stefani, O’Connor, "Hurricane Recovery an Active Process in Puerto Rico,” Hotel Management, August 29, 2018, accessed November 9, 2018, https://www.hotelmanagement.net/own/hurricane-recovery-active-process-puerto-rico.
[xxiii]Matt, Minich, "For Travellers, Puerto Rico Remains a Tropical Charmer.,” The Globe and Mail, October 19, 2018, accessed November 9, 2018, https://www.theglobeandmail.com/life/travel/article-for-travellers-puerto-rico-remains-a-tropical-charmer/.
[xxiv] Joe, Yogerst, "Puerto Rico Tourism Slowly Bouncing Back,” CNN, April 3, 2018, accessed November 9, 2018, https://www.cnn.com/travel/article/puerto-rico-tourism-post-hurricane/index.html.
[xxv]Alexandra, Talty. "Visiting Puerto Rico After Hurricane Maria: What You Need To Know,” Forbes, February 13, 2018, accessed November 9, 2018, https://www.forbes.com/sites/alexandratalty/2018/02/13/visiting-puerto-rico-after-hurricane-maria-what-you-need-to-know/#18a7bea659d1.
[xxvi] “The World Factbook: Puerto Rico,” Central Intelligence Agency, October 28, 2018, accessed November 8, 2018, https://www.cia.gov/library/publications/the-world-factbook/geos/rq.html.
[xxvii] Ibid.
[xxviii] “Government,” Welcome to Puerto Rico, 2018, accessed November 8, 2018, http://welcome.topuertorico.org/government.shtml.
[xxix] Ibid.
[xxx] “Puerto Rico Profile: Timeline,” BBC News, May 14, 2018, accessed November 8, 2018, https://www.bbc.com/news/world-us-
canada-17140808.
[xxxi] “Puerto Rico: Political Stability,” The Global Economy, 2018, accessed November 8, 2018, https://www.theglobaleconomy.com/Puerto-Rico/wb_political_stability/.
[xxxii] Ibid.
[xxxiii] “Is Puerto Rico Part of U.S.? It’s Complicated,” Fortune, September 13, 2018, accessed November 8, 2018, http://fortune.com/2018/09/13/is-puerto-rico-part-of-us/.
[xxxiv] Rafael Bernal, “Puerto Rico governor asks Trump to consider statehood,” The Hill, September 19, 2018, accessed November 8, 2018, https://thehill.com/latino/407494-puerto-rico-governor-asks-trump-to-consider-statehood.
[xxxv] Alexia Fernandez Campbell, “Puerto Rico’s push for staehood: explained,” Vox, September 24, 2018, accessed November 8, 2018, https://www.vox.com/policy-and-politics/2018/1/11/15782544/puerto-rico-pushes-for-statehood-explained.
[xxxvi] Sandra Lilley, “Puerto Rico is Part of the U.S.: Here’s a Few Things to Know,” NBC News, October 3, 2017, accessed November. 8, 2018, https://www.nbcnews.com/storyline/puerto-rico-crisis/puerto-rico-part-u-s-here-s-few-things-know-n807101.
[xxxvii] Lyle Denniston, “Constitution Check: Is Puerto Rico just a colony under Congress’s control?” National Constitution Center, October 2, 2015, accessed November 9, 2018, https://constitutioncenter.org/blog/constitution-check-is-puerto-rico-just-a-colony-under-congresss-control/.
[xxxviii] Alexia Fernandez Campbell, “Puerto Rico’s push for statehood: explained,” Vox, September 24, 2018, accessed November 8, 2018, https://www.vox.com/policy-and-politics/2018/1/11/15782544/puerto-rico-pushes-for-statehood-explained.
[xxxix] Ibid.
[xl] Tim Webber, “What Does Being A U.S. Territory Mean For Puerto Rico?” NPR, October 13, 2017, accessed November 8, 2018, https://www.npr.org/2017/10/13/557500279/what-does-being-a-u-s-territory-mean-for-puerto-rico.
[xli] Ibid.
[xlii] Rafael Bernal, “Puerto Rico governor asks Trump to consider statehood,” The Hill, September 19, 2018, accessed November 8, 2018, https://thehill.com/latino/407494-puerto-rico-governor-asks-trump-to-consider-statehood.
[xliii] Chris Huber et al. “2017 Hurricane Maria: Facts, FAQs, and how to help,” World Vision, August 1, 2018, accessed November 8, 2018, https://www.worldvision.org/disaster-relief-news-stories/hurricane-maria-facts.
[xliv] Amanda Holpuch, “Hurricane Maria: Puerto Rico Raises Official Death Toll From 64 To 2,975,” The Guardian, August 28, 2018, accessed November 8, 2018, https://www.theguardian.com/world/2018/aug/28/hurricane-maria-new-death-toll-estimate-is-close-to-3000.
[xlv] Erik Wasson, “Trump $44 Billion Aid Request Puts Off Puerto Rico Demands,” Bloomberg, November 17, 2017, accessed November 8, 2018, https://www.bloomberg.com/news/articles/2017-11-17/trump-disaster-request-said-to-fall-short-of-puerto-rico-request.
[xlvi] Nick Brown, “Puerto Rico Says To Receive $16 Billion In Federal Disaster Aid,” Reuters, February 9, 2018, accessed November 8, 2018, https://www.reuters.com/article/us-puertorico-storm-aid/puerto-rico-says-to-receive-16-billion-in-federal-disaster-aid-idUSKBN1FU00V.
[xlvii] Arelis R. Hernãndez, and Samantha Schmidt, “A Year After Maria, Puerto Rico’S Economy Remains Feeble,” The Washington Post, September 12, 2018, accessed November 8, 2018, https://www.washingtonpost.com/national/a-year-after-maria-puerto-ricos-economy-remains-feeble/2018/09/12/a947ce78-b136-11e8-aed9-001309990777_story.html?utm_term=.96eae6e83ea5.
[xlviii] Ibid.
