GeographyIQ.comGeographyIQ.com
  Home
  Rankings


A B C D E F
G H I J K L
M N O P Q R
S T U V W Y
Z          


Currency Converter

 


World > North America > Dominican Republic > Economy (Notes)

Dominican Republic - Economy (Notes)


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 manufacturers. 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. Central Bank statistics indicate 9.3% growth for 2005 with 7.44% inflation. The Central Bank estimates that economic growth for 2006 will surpass 11%, with inflation of about 5%.

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. The stock of U.S. foreign direct investment (FDI) in Dominican Republic in 2005 was U.S. $758 million, down from U.S. $1.1 billion in 2004, much of it directed to the tourism sector, to free trade zones, and to the telecommunications sector. Remittances were close to $2.5 billion in 2005.

An important aspect of the Dominican economy is the Free Trade Zone industry (FTZ), which made up U.S. $4.75 billion in Dominican exports for 2005 (77% of total exports). In 2006, however, reports show that the FTZs lost 41,000 jobs and suffered a 5% decrease in total exports. 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 China. 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 promote substantial growth in the FTZ sector for 2007.

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 third, serving the eastern provinces, is operated by U.S. concerns and is 50% U.S.-owned. The World Bank records that electricity distribution losses for 2005 totaled about 38.2%, a rate of losses exceeded in only three other countries. Industry experts estimate distribution losses for 2006 will surpass 40%, primarily due to low collection rates, theft, and corruption. At the close of 2006, the government had exceeded its budget for electricity subsidies, spending close to U.S. $650 million. The government plans to continue providing subsidies. Congress plans to pass a law in early 2007 that criminalizes the act of stealing electricity. The electricity sector is a highly politicized sector and with 2008 presidential election campaigning already in motion, the prospect of further effective reforms of the electricity sector is poor. Debts in the sector, including government debt, amount to more than U.S. $500 million. Some generating companies are undercapitalized and at times unable to purchase adequate fuel supplies.


Facts at a Glance: Geography - People - Government - Economy - Communications - Transportation - Military - Climate - Current Time - Ranking Positions
Notes and Commentary: People - Economy - Government and Political Conditions - Historical Highlights - Foreign Relations - Relations with U.S.



Facts at a Glance
Geography
People
Government
Economy
Communications
Transportation
Military
Climate
Current Time
Ranking Positions


Notes and Commentary
People
Economy
Government and Political Conditions
Historical Highlights
Foreign Relations
Relations with U.S.





   Privacy Policy

   Portions of this site are based on public domain works from the U.S. Dept. of State and the CIA World Fact Book
   All original material copyright © 2002 - GeographyIQ.com. All Rights Reserved.
   For comments and feedback, write to us at info@GeographyIQ.com.