The San Juan Star / December 9, 1995
By Larry Luxner
MIAMI -- The Rosselló administration is suddenly asking Puerto Rico's island neighbors to help defend Section 936 from the Congressional budget axe.
Francisco J. Uriarte, assistant secretary of state for Caribbean affairs, concedes that the death of 936 "would immediately affect the ability of Puerto Rico's financial system to extend additional CBI financing" through the U.S. Caribbean Basin Initiative.
In a speech Wednesday to around 150 executives attending the 19th annual Miami Conference on the Caribbean and Latin America, Uriarte defended Rosselló's "active support" of regional issues such as the CBI-NAFTA parity bill and assistance to Haiti.
"We understand that the Caribbean Basin countries are gravely concerned with the apparent loss of such a valuable financing mechanism," he told the delegates. "We are thus asking your assistance and support in conveying to Congress and the Clinton administra-tion the importance of not terminating Section 936 without providing Puerto Rico and the Caribbean Basin with the necessary tools to continue working towards economic prosperity."
He added: "On countless occasions we have expressed our view that Puerto Rico's commitment to the Caribbean Basin transcends the continued applicability of Section 936. Now that Congress appears resolved to terminate it, Gov. Rosselló's alternative proposal is a clear example of Puerto Rico's commitment to the countries of the region. We think and hope the governor's proposal merits the support of all of you."
That alternative plan, he suggested, "would maintain those provisions of the hereto-fore applicable Section 936 which allow the lending of low-cost funds to eligible Caribbean Basin countries."
Yet some island leaders aren't convinced. They say don't want the 936 program tinkered with in any way.
"It's been a very important program for us, and it's critical that it be retained in its present form," Richard Bernal, Jamaica's ambassador to the United States, told the STAR. "We have had significant funds from this program, and interest rates have been favorable. To remove that would retard investment in many sectors, from hotels and airlines to electricity projects."
Added Edison James, the prime minister of Dominica: "The end of 936 funds will have serious repercussions on Dominica's economy. This comes at a time of lower U.S. development aid, which we can ill afford."
Jamaica and Dominica are two of 10 countries throughout the Caribbean and Central America which have signed Tax Information Exchange Agreements with the U.S. Treasury. That qualifies them for so-called "936 funds," which are generally available at one or two percentage points below prevailing interest rates -- thus resulting in up to 20 perent savings in finance costs. The other eight nations are Barbados, Costa Rica, the Dominican Republic, Grenada, Guyana, Honduras, St. Lucia and Trinidad & Tobago. The U.S. Virgin Islands qualifies under a separate provision.
Since the program's inception in 1987 by the Hernández Colón administration, Puerto Rico's CBI financing program has promoted more than 180 projects in eligible CBI countries, creating 37,000 jobs and resulting in total investment of $2.1 billion. Of that, some $1.2 billion has been funded through direct CBI loans or bond issues from Puerto Rico's Caribbean Basin Projects Financing Authority, or Carifa.
Yet current U.S. legislation calls for the elimination of the "QPSII" -- or qualified possession source investment income -- on Jan. 1, 1996. Qualified funds refers to profits deposited in Puerto Rican banks by subsidiaries of U.S. manufacturers that have operations on the island. Under Section 936 of the Internal Revenue Code, these funds are partially exempt from U.S. income tax.
"The bill immediately eliminates QPSII, so even loans that were granted three years ago will cost more in interest," says Antonio J. Colorado Jr., a Popular Democratic Party veteran who spent more than a decade defending Section 936 -- first as Fomento administrator, later as Puerto Rico's secretary of state and finally resident commissioner in Washington.
"I was in charge [of 936] for eight years, and nothing happened to the program. But it's happening now," charged Colorado, adding that island governments from Costa Rica to Guyana are "indignant" at the possibility that agreements negotiated in the past could now become meaningless as a result of 936 being phased out.
"The government of St. Lucia amended its laws to be able to sign the TIEA," said Colorado, who on Sunday was named executive director of Caribbean/Latin American Action, the organization that sponsors the Miami conference. "Without 936 funds, they'll have to pay about one percent higher interest. When you're talking about a $100 million project, you bet it's significant."
Despite Uriarte's pronouncements on the current administration's "commitment to the Caribbean," Rosselló didn't attend the annual four-day gathering -- marking the first time in several years that a Puerto Rican governor wasn't present. Yet neither did many other leaders. In fact, the only heads of state that came to Miami were Dominica's Edison James and Nicaraguan President Violeta Chamorro.
The meeting was, however, well represented by the U.S. government, including two Congressmen --Republicans Philip M. Crane of Illinois and Benjamin A. Gilman of New York.
Crane, chairman of the House Subcommittee on Trade, said concern over the loss of Section 936 comes as Caribbean islands find themselves being squeezed by Mexico's comparative advantages under the North American Free Trade Agreement. Yet he added that a bill to give CBI nations "parity" with Mexico and rectify the situation is a "long shot" that "becomes more remote with each passing minute."
Asked what his colleagues on Capitol Hill think about the possible death of Section 936, Crane laughed. "The overwhelming majority of members of Congress haven't the foggiest notion what you're talking about," he said. "It's totally irrelevant to them."