ECONOMY
After a decade of little to no growth in the 1980s, the Dominican Republic's economy boomed in the 1990s, expanding at an average rate of 7.7% per year from 1996 to 2000. Tourism (the leading foreign exchange earner), telecommunications, and free-trade-zone manufacturing are the most important sectors, although agriculture is still a major part of the economy. The Dominican Republic owed much of its success to the adoption of sound macroeconomic policies in the early 1990s and greater opening to foreign investment. Growth turned negative in 2003 (-0.4%) due to the effects of government handling of major bank frauds and to lower U.S. demand for Dominican manufactures. The Mejía administration negotiated an IMF standby agreement in August 2003 but was unable to comply with fiscal targets. The Fernández administration obtained required tax legislation and IMF board approval for the standby in January 2005. The Dominican peso fell to an unprecedented low in exchange markets in 2003-2004 but strengthened dramatically following the election and inauguration of Leonel Fernández. Since late 2004 it has traded at a rate considered to be overvalued on a purchasing power parity basis. Inflation fell sharply in late 2004 and was estimated at 9% for that calendar year. The Fernández administration successfully renegotiated official bilateral debt with Paris Club member governments, commercial bank debt with London Club members, and sovereign debt with a consortium of lenders. It met fiscal and financial targets of the standby agreement but fell short of goals for reforms in the electricity sector and financial markets. The IMF standby agreement ended in January 2008. The global economic crisis, and in particular the U.S. recession, started to impact the Dominican economy in 2008 with remittances, exports, and tourism revenues falling. Economists believe that the full impact has not yet been felt and will worsen in 2009. The Dominican Republic's most important trading partner is the United States (75% of export revenues). Other markets include Canada, Western Europe, and Japan. The country exports free-trade-zone manufactured products (garments, medical devices, etc.), nickel, sugar, coffee, cacao, and tobacco. It imports petroleum, industrial raw materials, capital goods, and foodstuffs. On September 5, 2005, the Dominican Congress ratified a free trade agreement with the U.S. and five Central American countries, known as CAFTA-DR. The CAFTA-DR agreement entered into force for the Dominican Republic on March 1, 2007. Most of the U.S. foreign direct investment (FDI) in the Dominican Republic is directed to the energy and tourism sectors, to free trade zones, and to the telecommunications sector. Remittances were close to $3 billion in 2008.
An important aspect of the Dominican economy is the Free Trade Zone industry (FTZ), which made up U.S. $4.55 billion in Dominican exports for 2006 (70% of total exports). Reports show, however, that the FTZs lost approximately 60,000 between 2005 and 2007 and suffered a 4% decrease in total exports in 2006. The textiles sector experienced an approximate 17% drop in exports due in part to the appreciation of the Dominican peso against the dollar, Asian competition following expiration of the quotas of the Multi-Fiber Arrangement, and a government-mandated increase in salaries, which should have occurred in 2005 but was postponed to January 2006. Lost Dominican business was captured by firms in Central America and Asia. The tobacco, jewelry, medical, and pharmaceutical sectors in the FTZs all reported increases for 2006, which somewhat offset textile and garment losses. Industry experts from the FTZs expect that entry into force of the CAFTA-DR agreement will continue to promote substantial growth in the FTZ sector.
An ongoing concern in the Dominican Republic is the inability of participants in the electricity sector to establish financial viability for the system. Three regional electricity distribution systems were privatized in 1998 via sale of 50% of shares to foreign operators; the Mejía administration repurchased all foreign-owned shares in two of these systems in late 2003. The Fernandez administration announced in June 2009 that it is negotiating the purchase of the third distributor, which serves the eastern provinces. The World Bank records that electricity distribution losses for 2008 totaled about 36%, a rate of losses exceeded in only two other countries. Due to low collection rates, theft, infrastructure problems, and corruption, distribution losses remain high. Subsidies to the electricity sector exceeded $1 billion in 2008. Congress passed a law in 2007 that criminalizes the act of stealing electricity; it entered into force in February 2009. The electricity sector is highly politicized; the prospect of further effective reforms in the sector is poor. Debts in the sector, including government debt, amount to close to U.S. $600 million. Some generating companies are undercapitalized and at times unable to purchase adequate fuel supplies.
Economy (2008)
GDP: $45.6 billion.
Growth rate (est.): 4.9%.
Per capita GDP (est.): $5,122.
Non-fuel minerals (1.4% of GDP): Nickel, gold, silver.
Agriculture (6.5% of GDP): Products--sugarcane, coffee, cocoa, bananas, tobacco, rice, plantains, beef.
Industry (27.4% of GDP): Types--sugar refining, pharmaceuticals, cement, light manufacturing, construction.
Services, including tourism and transportation: 58.6% of GDP.
Trade: Exports--$6.484 billion (FOB), including processing zones: textiles, sugar, coffee, ferronickel, cacao, tobacco, meats, and medical supplies. Markets--U.S. (75%), Canada, Western Europe, South Korea. Imports--$8.797 billion: foodstuffs, petroleum, industrial raw materials, capital goods. Suppliers--U.S. (48%), Japan, Germany, Venezuela, Mexico, Colombia.
