Behind Puerto Rico’s Debt, Corporations That Drain Profits from the Island | César J. Ayala


(MR Zine, 12 August 2015)

The Phenomenal Drain of Profits

Beginning in the 1970s, Puerto Rico’s economy began to suffer a drain of profits, to the point where the measure of total income produced in the island, the Gross Domestic Product, began to separate dramatically from the measure of income that residents own, the Gross National Product or GNP.

Puerto Rico, GNP and GDP in $Million, 1947-2013
Source: GNP and GDP data is from Puerto Rico Planning Board.

This divergence owes itself to the extraordinary volume of profits that leave Puerto Rico into the hands of the foreign investors that control its economy.  A third of the income that is generated in Puerto Rico leaves the country each year in the form of repatriated profits.  In other words, the gross National Product of Puerto Rico, or the income that belongs to the residents of the island, is 67% of the total income generated there; the other third is taken away by U.S. corporations.

Puerto Rico, GDP Decomposed into GNP and Repatriated Profits (in Millions of Current $)
Source: GNP and GDP data is from Puerto Rico Planning Board.

This is a phenomenal drain of resources in an economy controlled primarily by American multinational corporations.  In the graph above, the columns represent the Gross Domestic Product of Puerto Rico, broken down into the part belonging to the island’s residents (GNP) and the part of the income that U.S. investors take home in the form of repatriated profits.  Puerto Rico’s debt is currently valued at 70 billion dollars; U.S. corporations repatriated 313 billion dollars between 2004 and 2013.  To put this drain in perspective, repatriated profits in the last decade alone are enough to pay the entire debt of Puerto Rico’s government and its public corporations four times over!

These payments to absentee capital constitute the elephant in the room that is never mentioned in discussions of Puerto Rico’s debt problems.  If we take the last decade, the profits earned in two of the last ten years, or an equivalent of 20% in taxes on the total profits generated during that decade, would be enough to leave Puerto Rico free of debt.

Puerto Rico, Transfers to Foreign Investors
Source: GNP and GDP data is from Puerto Rico Planning Board.

An Extraordinary Case

One might think that the case of Puerto Rico is normal with respect to Foreign Direct Investment and the resulting proportion of the income it produces that escapes into the hands of foreign investors.  However, this is not the case.  Puerto Rico’s situation is exceptional in terms of repatriation of profits and the drain it creates on the local economy.  The following table represents GDP and GNP in a number of selected countries.  In the worst of these cases, Ireland, extracted profits are not even half of those of Puerto Rico (15 % of the GDP compared to 33% in Puerto Rico).

Country Gross Domestic Product (2013)* Gross National Income (2013)** GNI as % of GDP
South Africa $366,057,913,372 $393,823,024,542 108
Greece $242,230,732,091 $249,278,628,645 103
United States $16,768,053,000,000 $17,113,833,339,939 102
Spain $1,393,040,177,014 $1,395,888,680,016 100
Malaysia $313,158,247,643 $309,755,676,019 99
South Korea $1,305,604,961,393 $1,298,955,846,781 99
Dominican Republic $61,198,258,779 $60,060,832,161 98
Argentina $622,057,981,847 $604,738,952,600 97
Chile $276,673,695,234 $268,328,882,346 97
Czech Republic $208,796,024,646 $199,407,572,904 96
Mexico $1,262,248,825,556 $1,209,227,950,661 96
Uruguay $57,524,653,094 $53,290,776,344 93
Ireland $232,077,367,193 $198,111,832,736 85
Puerto Rico $103,134,778,000 $69,432,480,620 67
* Source: data.worldbank.org/indicator/NY.GDP.MKTP.CD/countries
** Source: data.worldbank.org/indicator/NY.GNP.ATLS.CD/countries

It is well to ask, then, whether Puerto Rico can recover from its debt crisis without confronting the elephant in the room (profit repatriation), that is, without demanding contributions from the corporations that make so much money in the island?

In case anyone doubts that the problem of absentee capital in Puerto Rico is extreme, here is a list of 189 countries with the ratio of GNP/GDP.  Puerto Rico ranks 188 of 189!  The mean GNP/GDP ratio is 97.32, the Standard Deviation is 8.62, which means that Puerto Rico is 3.5 Standard Deviations below the mean!  Z score < .0002 !!!!!!!!!!!!!

Standard Deviation:

8.624218

Mean:

97.32458

How many Standard Deviations below mean is Puerto Rico?

3.50

Puerto Rico is truly a statistical outlier when it comes to the percentage of its GDP that drains out of its economy due to profit repatriation by absentee capital.

Country Ratio of GNP to GDP (% in Current Prices): Year 2007
1 Timor-Leste 431.11
2 Kiribati 157.20
3 Lesotho 126.08
4 Marshall Islands 123.46
5 Kuwait 111.55
6 Djibouti 109.82
7 Moldova 109.63
8 Switzerland 109.22
9 Philippines 109.04
10 Micronesia, Fed. Sts. 107.55
11 Bangladesh 107.47
12 Macao 106.68
13 Jordan 105.10
14 Mauritania 104.00
15 Hong Kong 103.85
16 Tonga 103.55
17 Japan 103.33
18 Bosnia and Herzegovina 103.27
19 Bhutan 102.99
20 Albania 102.78
21 Taiwan 102.63
22 Libya 102.39
23 Swaziland 102.20
24 Georgia 102.20
25 Sweden 102.12
26 Netherlands 102.00
27 Paraguay 101.91
28 Denmark 101.84
29 Pakistan 101.82
30 Palau 101.35
31 Niger 101.16
32 Venezuela 101.12
33 Belgium 101.09
34 United Kingdom 101.04
35 Nepal 101.02
36 Mauritius 100.98
37 Germany 100.97
38 China Version 1 100.76
39 China Version 2 100.76
40 Finland 100.69
41 Montenegro 100.68
42 United States 100.55
43 France 100.52
44 Egypt 100.41
45 Norway 100.40
46 Kenya 100.39
47 Comoros 100.31
48 Uzbekistan 100.28
49 Korea, Republic of 100.15
50 United Arab Emirates 100.15
51 Ethiopia 100.07
52 Afghanistan 100.07
53 Saudi Arabia 100.06
54 Brunei 100.00
55 Benin 100.00
56 Israel 99.98
57 Romania 99.88
58 Tanzania 99.68
59 Cameroon 99.62
60 India 99.54
61 Sao Tome and Principe 99.54
62 Macedonia 99.53
63 Rwanda 99.48
64 Italy 99.47
65 Central African Republic 99.40
66 Lebanon 99.36
67 Malawi 99.35
68 Eritrea 99.32
69 Burkina Faso 99.31
70 Senegal 99.21
71 Madagascar 99.20
72 Qatar 99.16
73 Canada 99.13
74 Belarus 99.12
75 Guatemala 99.07
76 Ghana 99.06
77 Sri Lanka 98.94
78 Iran 98.93
79 Bulgaria 98.92
80 Solomon Islands 98.92
81 Turkey 98.91
82 Namibia 98.90
83 Algeria 98.74
84 Morocco 98.70
85 Bolivia 98.68
86 Mexico 98.62
87 Kyrgyzstan 98.60
88 Fiji 98.54
89 Guinea 98.54
90 Ukraine 98.50
91 Austria 98.34
92 Togo 98.26
93 Uruguay 98.24
94 Syria 98.17
95 Uganda 98.10
96 Slovenia 98.03
97 Mongolia 97.99
98 Argentina 97.98
99 Sierra Leone 97.90
100 Malaysia 97.86
101 Cuba 97.84
102 Suriname 97.81
103 Nicaragua 97.72
104 Guinea-Bissau 97.60
105 Greece 97.59
106 Russia 97.56
107 Samoa 97.46
108 Spain 97.43
109 Malta 97.33
110 Tajikistan 97.31
111 Turkmenistan 97.30
112 Vietnam 97.28
113 Oman 97.26
114 El Salvador 97.16
115 Bahamas 97.04
116 Cyprus 96.99
117 Croatia 96.97
118 Poland 96.96
119 Costa Rica 96.96
120 Brazil 96.87
121 South Africa 96.87
122 Thailand 96.83
123 Burundi 96.73
124 Cape Verde 96.57
125 Singapore 96.46
126 Latvia 96.42
127 Laos 96.23
128 Colombia 96.20
129 Mali 96.05
130 Indonesia 96.04
131 Congo, Dem. Rep. 96.02
132 Serbia 95.92
133 Lithuania 95.77
134 Slovak Republic 95.74
135 Portugal 95.71
136 Cambodia 95.69
137 Australia 95.65
138 Bahrain 95.63
139 Cote d`Ivoire 95.62
140 Ecuador 95.40
141 Trinidad &Tobago 95.39
142 Iceland 95.32
143 Honduras 95.10
144 Barbados 95.09
145 Tunisia 94.94
146 Dominican Republic 94.70
147 Botswana 94.68
148 Antigua and Barbuda 94.57
149 Maldives 94.54
150 St. Kitts & Nevis 94.50
151 St. Lucia 94.41
152 Yemen 94.35
153 Seychelles 94.18
154 Zimbabwe 94.12
155 Czech Republic 93.99
156 St.Vincent & Grenadines 93.24
157 Panama 93.19
158 Hungary 93.14
159 Vanuatu 93.05
160 New Zealand 92.83
161 Guyana 92.78
162 Gambia, The 92.73
163 Estonia 92.47
164 Peru 91.92
165 Haiti 91.23
166 Somalia 91.05
167 Mozambique 90.54
168 Belize 90.23
169 Sudan 90.17
170 Dominica 90.09
171 Papua New Guinea 89.68
172 Nigeria 89.50
173 Chile 88.85
174 Kazakhstan 88.42
175 Gabon 88.42
176 Zambia 87.82
177 Jamaica 87.16
178 Chad 86.83
179 Ireland 84.50
180 Azerbaijan 83.75
181 Luxembourg 81.98
182 Angola 79.21
183 Congo, Republic of 78.33
184 Liberia 76.18
185 Grenada 74.58
186 Bermuda 73.27
187 Equatorial Guinea 69.28
188 Puerto Rico 67.15
189 Iraq 64.20
Source: Penn World Tables: datacentre2.chass.utoronto.ca/pwt/

Puerto Rico: Repatriated Profits and Public Debt

Puerto Rico is one of only 3 “countries” in the world that lose more than 30% of the income generated within their territories.  The other two are Equatorial Guinea and Iraq.

Ratio of GNP to GDP (Index of Income Retention)
Source: Penn World Tables: datacentre2.chass.utoronto.ca/pwt/


César J. Ayala is Professor of Sociology at the University of California, Los Angeles.

This entry was posted in Cultural Studies, Current Affairs, Development Studies, History, International Relations, Political Economy, Politics, Post-colonial Studies and tagged , . Bookmark the permalink.

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