0 16 First BanCorp.> 2001 Puerto Rico made a rapid transition from poverty in the immediate postwar period to prosperity today. Throughout this process the Island has attracted industry using tax exemp- tion. Many multinational corporations have substantial opera- tions here. During 1996 Congress repealed Section 936 of the Internal Revenue Code, which provided Federal tax exemp- tion for companies operating in Puerto Rico. However, Congress also provided a ten year grandfather clause for com- panies already operating here.The reduction of tax incentives has combined with intense wage competition in other areas and the U.S. recession to reduce manufacturing employment. Still, Puerto Rico is becoming somewhat less dependent on manufacturing than it was in the early postwar period.While manufacturing is still an important part of its economy, Puerto Rico has been diversifying to include tourism, services and transportation. During the recent slowdown construction activity has held up well, but manufacturing and consumption have weakened somewhat. Tourism has been affected along with the rest of the Caribbean region, though new hotels have mitigated this effect. Economists expect a decrease of less than 1% in real GNP during fiscal 2002 followed by recovery and growth in future years.