Puerto Rico’s economy will suffer when more U.S. travelers are allowed to visit Cuba as economic barriers are loosened, according to Belle Haven Investments, which manages $2.4 billion of municipal debt.
“Cuba is poised to become the next hot spot destination which will attract tourists who now travel to Puerto Rico,” Matt Dalton, chief executive officer, and Tamara Lowin, director of research, at the White Plains, New York-based firm, wrote in a report today.
Puerto Rico is seeking to rely on tourism to help boost its economy after its debt was cut to speculative grade by the three largest rating companies in February. Commonwealth officials want tourism to expand to 8 percent of gross domestic product by 2016 from 6 percent now, according to the Government Development Bank, which handles the island’s debt sales.
While Cuba is 10 times the size of Puerto Rico and has 13 times the coastline, it receives only 3 million tourists annually compared with 4.2 million for the U.S. commonwealth, according to Belle Haven.
President Barack Obama on Dec. 17 outlined measures that will relax five decades of tensions between the U.S. and Cuba, which are separated by 90 miles (145 kilometers). While stopping short of authorizing general tourism, the White House listed 12 permissible travel purposes including research and sales, according to a report yesterday from Bloomberg Intelligence.
About one-third of Puerto Rico’s workforce is in the service industry, which accounts for 13 percent of the commonwealth’s gross domestic product, according to the report.
“Any decrease in tourism will have negative implications on their economic stability,” Dalton and Lowin wrote in the report.
If the U.S. were to end the travel ban to Cuba, the effects on Puerto Rico’s economy won’t be visible for three to eight years yet will be sustained once they occur, according to the report.