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Home > About GDB > History

History

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The Eighties: The Recovery Begins

The economic decline that characterized the 1970s extended into the mid-1980's. Inflation continued unabated and the island’s unemployment rate reached a high of 23.4% in 1983. But a few rays of light appeared to brighten this otherwise dark panorama. Section 936 of the U.S. Internal Revenue Code, which had been approved by Congress in 1976, began to deliver dividends in the form of new investments. This section allowed subsidiaries of U.S. companies operating on the island to remit their profits to their parent firms without having to pay federal taxes. While Congress subsequently applied some restrictions, it proved to be a valuable incentive to attract new investments to the island. Many large U.S. corporations, particularly electronic and pharmaceutical firms, were drawn to Puerto Rico thanks largely to this tax incentive.

The new wave of investments spurred by Section 936 helped put the island on the road to recovery. By 1990 the island’s unemployment rate had dropped to 14.1% as thousands of Puerto Ricans found jobs in the newly established factories. The 1980's also witnessed other important initiatives by the GDB. In an effort to encourage more Puerto Ricans to continue their academic studies, the Bank in 1981 established the Puerto Rico Higher Education Assistance Corporation. This subsidiary guaranteed loans granted students by private banks under a federally sponsored program. Likewise, the Bank also created the Puerto Rico Student Loan Association that offered low interest loans for postgraduate studies.

The Bank also focused its attention on new ways to stimulate the construction of new homes for low and moderate-income families. In 1985 it established the First Mortgage Trust that generated more than 3,000 new dwellings for families who otherwise could not afford to buy their own homes. The success of this new trust concept led to the enactment of a new law in 1987 that allowed financial cooperation between government and the private sector to provide affordable homes to needy families.

In 1987 the Bank sold $1.6 billion in Puerto Rico general obligation bonds, at the time the largest ever in the Bank’s history and the second largest in the U.S. municipal bonds market. This sale generated savings of $80.8 million in future debt service payments.

In 1988 the GDB created the Puerto Rico Infrastructure Financing Authority (AFI for its Spanish acronyms) to provide financial and administrative aid to government entities in the development of infrastructure projects. The prime target of AFI was the island’s debt-ridden Aqueducts and Sewers Authority.

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