An Economy in Transformation

During the last decades, the Dominican economy has experienced a deep structural transformation. A transition from an agricultural economy generating more than 80% of its exports in traditional commodities, mainly sugar, and a model based on import substitution, from 1948-1960, to a service oriented economy accounting for more than 35% of its exports during the decade of 1991-2000.

The model of Free Export Processing Zone introduced in the decade of 1971-1980, based on the unilateral US market access preferences gained through the Caribbean Basin Initiative (CBI) proved to be of paramount importance in this transformation. Exports from the FTZ represented 51% of DR's total exports from 1991-2000.

The results of this transformation which included less government intervention through the elimination of price controls, exchange rate liberalization, and capitalization of state owned enterprises, brought economic growth above the Latin American average and a tremendous inflow of foreign capital.

Path to Prosperity: Recent Developments

From 1996-2000, Dominican Republic grew at an outstanding annual average rate of 8%, among the highest in Latin America, and inflation was controlled at a single digit, averaging 7%.

During the following four years, 2000-2004, DR's previous bonanza had eroded. After the worst economic downturn in decades, following a deep financial crisis in 2003 which led to a severe recession combined with a significant rise in public debt, high inflation, and depreciation of the currency, the government of President Leonel Fernandez, re-elected for his second term, 2004-2008, helped revert this situation through a set of sound economic policies and fiscal controls, bringing about stability and high levels of growth for the Dominican Republic.

Under President Leonel Fernandez's tenure, recovery of the Dominican economy has been exponential, as stated by the International Monetary Fund (IMF) in a public information notice dated December 7, 2005, calling it "a remarkable turnaround in economic and financial conditions since mid-2004". The UN Economic Commission for LA and the Caribbean (ECLAC) also recognized DR economic growth.

The winning strategy employed by President Fernandez's economic team included: the reduction of country risk through debt renegotiation (Paris Club and private entities); strengthening confidence and stability in the economy through an IMF Stand-By Arrangement which demanded fiscal adjustments to improve public accounts, financial strategies to reduce the deficit of the public sector, monetary policies designed to reduce inflation to a single digit, and institutional reforms of the financial system; and the re-launch of economic growth programs and the development of a fiscal reform policy aimed at adapting the country to a new, liberalized trade environment.

As a result of these drastic measures and sound economic policies, Dominican Republic has exceeded the expectations, placing it among the highest growing economies in Latin America.

• In 2005, the Dominican economy grew 9.3%, among the highest growing countries in Latin America, contributing in improving the overall growth rate of the region, 4.3% for 2005.
• The sectors of the economy which contributed to the overall growth were: communications, growing 26.8%, commerce, 19.86%, transportation, 10.1%, tourism, 7.6%, agriculture, 7.2% (the Food and Agriculture Organization of the UN recently recognizes an improvement in DR food security, due to growth within the national agricultural sector), construction, 6.2%, and manufacture, 5.4%.
• Inflation for 2005 was controlled at a single digit, 7.44%, a significant improvement from the 28.74% observed in 2004 -of the total for 2005, 4.72% accounted for variations in the price of energy (an exogenous factor) .
• During the period January-September 2005, interest rates for commercial bank loans were reduced by more than 10% to an average of 21.54%, helping increase internal demand by 10.8%; the construction sector has greatly benefited from reductions in interest rate to about 12.5% for mortgage loans, from high 18-26% during the period 2003-2004.
• Consolidation of the macroeconomic stability has also been reflected through an appreciation of the DR currency against the Dollar of more than 30% -Exchange rate has been stabilized at the low $30 Pesos per Dollar from a high $60 Pesos/Dollar.
• In consistency with the recovery of the economy and an appreciation of the national currency, total imports increased by $1,346.4 million dollars (32.4%), while total export increased by $200.5 million dollars (4.7%).
• In 2005, Foreign Direct Investment (FDI) registered an increase of 41.2% with respect to the same period of 2004, from $599 million dollars to $845.8 million dollars, with investments directed to tourism, communications and Free Trade Zones.
• Tourism sector grew 11.9% last year compare to 2004, to a total of $3,525 million dollars in foreign currency, and the overall arrival of tourists to the DR grew 32.71%; This growth was mainly due to the increase in travelers from the U.S. In 2005, the number of U.S visitors reached 1,010,012. This is the first time that the arrival of tourists from the U.S. surpassed the one million mark.
• Last year, net international reserves increased to the levels recommended by financial multilateral organizations and risk evaluators of above three months of imports, to $858.6 millions dollars, a substantial increase from the IMF target of $350 million dollars.
• For the period January-September 2005, and in compliance with the economic program target established by the IMF Stand-By Agreement, on the fiscal side, authorities managed to obtained a surplus of 1.8% of GDP (DR$10,012.8 millions), while on the monetary side, authorities reduced the money base within the proposed levels, through the issuance of certificates of investment which further helped reduce interest rates, reducing Central Bank payments.
• The quasi fiscal deficit was reduce by 16.3%, to $26,090 million Pesos, 2.95% of GDP, from $31,176 millions Pesos, 4% of GDP -the cost of the banking fraud (bailed out) of 2003.
• Population: 8,562,541 (census 2002)
• Area (sq. km): 48,730
• GDP (US$ billions): 18.15 (2005 est.)
• GDP Growth (annual %): 9.3 (2005 est.)
• GDP per capita (US$): 2,120 (2005 est.)
• GDP composition (%):
• Agriculture 10.7 (2003)
• Industry 31.5 (2003)
• Service 57.8 (2003)
• Exchange Rate (DR$/US$): 33.50 (March 2007)
• Inflation (annual %): 7.44 (2005)
• Unemployment rate (%): 17.9 (2005)
• Exports of goods/services (US$ billions): 6,133 (2005 est.)
• Imports of goods/services (US$ billions): 9,614 (2005 est.)
• Exports/GDP (%): 33.7 (2005 est.)
• Imports/GDP (%): 52.9 (2005 est.)
• Foreign Direct Investment (US$ millions): 858.6 (2005 est.)
• International reserves (US$ millions): 1,929.5 (Dec. 2005)
• External debt (US$ millions): 6,755.7 (2005)