Dominican Republic

Politics:

• Analysis

  Dominican Republic politics: Quick View - Mr Medina clocks up 100 days as p

  Event

  Marking his first 100 days in office, the president, Danilo Medina, addressed the nation on November 27th to set out his accomplishments to date and his goals for the short to medium term.

  Analysis

  The president's speech came at an opportune time, following a spate of protests against the government's fiscal reform package, approved by Congress earlier in November, and demands for accountability for the fiscal crisis that he and his administration inherited.

  In delivering the speech, Mr Medina kept his promise to govern in a transparent way and report regularly to the public about the government's activities. He adopted an optimistic tone, focusing on progress made in his first three months and reaffirming his commitment to the ambitious social development goals set out in his campaign platform. He described early efforts to support the agricultural sector (through an injection of funds to the state-owned Agriculture Bank) and small and medium-sized enterprises, to address crime and to cut superfluous spending by government officials, such as eliminating the use of government-issued credit cards for private transactions. He also highlighted other measures, such as implementation of a new mortgage law and streamlining of the process for securing import permits.

  For 2013, Mr Medina announced a new plan to modernise and reform the police force and provide it with more funding; a homebuilding project for poor families; the construction of 10,000 new classrooms; and the start of a nationwide literacy programme;

  However, the new president avoided mentioning the ongoing electricity crisis (characterised by huge debts owed to the electricity sector and recurrent power outages), the causes of the fiscal deficit (estimated at 6.8% of GDP this year) and the recent discussions with the IMF (which issued a press release underscoring its concerns about the country's fiscal performance). While admitting that newly approved tax increases would be a bitter pill to swallow in the short term, the president did not address the demands of various social groups that the previous administration be held responsible for the large fiscal deficit and be investigated for alleged mismanagement of public funds.

  Overall, Mr Medina's presentation seems to have been well received and to have calmed some of the early criticisms of his administration. However, he is likely to come under greater pressure in 2013 to deliver firm results on poverty alleviation, employment generation and expansion of social programmes. This will be difficult to achieve, given tight fiscal constraints.

  November 28, 2012

• Background

  Dominican Republic: Key figures

  Leonel Fernández

  A lawyer by training, Mr Fernández completes his third term as president for the Partido de la Liberación Dominicana (PLD) in August 2012. He first ruled in 1996-2000 and again in 2004-08 and 2008-12. He succeeded in securing constitutional reforms, which included restructuring of the judiciary, a change in re-election provisions (allowed after four years out of office), changes to provisions related to Dominican nationalisation and a ban on abortion. His government pursued a centrist agenda focused on macroeconomic stability, a small expansion of subsidies to the poor, investment in large-scale infrastructure works and the attraction of foreign direct investment (FDI). Progress on tackling crime, corruption and chronic electricity shortages was slower than expected. Mr Fernández will maintain strong influence in Dominican politics after his term ends and may run for his party's presidential nomination again in 2016.

  Danilo Medina

  Mr Medina is an economist and engineer and has been a member of the PLD's central committee since 1983. Prior to winning the May 2012 presidential election, he was the candidate for the PLD in the 2000 election, when he was defeated by Hipólito Mejía of the Partido Revolucionario Dominicano (PRD). He served as the president of the Chamber of Deputies in 1994-96 and was secretary of state of the presidency in 1996-2000 and again in 2004-06. He is expected to broadly retain the macroeconomic policies of his predecessor while emphasising government efficiency and social policy. Under the new constitution he will not be allowed to run for consecutive re-election.

  Hipólito Mejía

  Mr Mejía was president in 2000-04 for the PRD, when he presided over a severe economic crisis following the emergence of massive fraud in the banking sector. He was defeated in the 2004 election by Mr Fernández. An agronomist and long-term PRD member, his influence recovered and he beat rival Miguel Vargas Maldonado to win the nomination to be the PRD's presidential candidate in 2012. However, the battle for the nomination created major divisions within the party, which were exacerbated by its electoral loss. The polarisation and fight for leadership with Mr Vargas Maldonado is likely to continue.

  Miguel Vargas Maldonado

  Mr Vargas Maldonado was the 2008 presidential candidate for the PRD and he is currently president of the party. An engineer by training, he was also the secretary of public works in the Mejía government. He battled against Mr Mejía for the party's presidential nomination in 2012, and his faction alleged irregularities in the internal voting process after he lost to his rival. Divisions within the party worsened after the PRD lost the vote, leading to a widening rift between the two men.

  Margarita Cedeño de Fernández

  The former first lady, Ms Cedeño will serve as vice-president to Mr Medina in 2012-16. A lawyer by training, she was legal adviser to Mr Fernández in 1996-2000 before they were married in 2003. Supporters of Ms Cedeño had proposed her as the PLD's candidate in the 2012 presidential election, but she withdrew after criticism that her candidacy was an attempt to perpetuate her husband in power. She is expected to manage important social programmes in the Medina administration.

  July 27, 2012

• Structure

  Dominican Republic: Political structure

  Official name

  Dominican Republic

  Form of government

  Representative democracy with a US-style Congress and presidency

  Head of state

  Danilo Medina was elected president on May 20th 2012 and took office on August 16th

  The executive

  The president has executive power, appoints a cabinet and holds office for four years

  National legislature

  Bicameral Congress, with both houses directly elected; the Senate (the upper house) has 32 members, one for each province and one for the national district; the Chamber of Deputies (the lower house), has 183 members, and is elected every four years

  Legal system

  There are local justices covering 72 municipalities and 18 municipal districts; each province acts as a judicial district. The 2010 constitution created a new Constitutional Court. A National Council of Magistrates appoints judges to the Constitutional, Supreme and Electoral courts

  National elections

  The last legislative and municipal elections were held on May 16th 2010; the last presidential election was held on May 20th 2012, which the governing party's candidate, Danilo Medina, won outright. The next presidential, legislative and municipal elections are due to be held simultaneously on May 16th 2016

  National government

  The president's PLD party has a majority in the Congress that was inaugurated in August 2010 for a six-year period. The PLD has 31 senators and 105 deputies; the PRD has no senators and 75 deputies; and the PRSC has one senator and three deputies

  Main political organisations

  Government and allies: Partido de la Liberación Dominicana (PLD); Partido Reformista Social Cristiano (PRSC)

  Opposition: Partido Revolucionario Dominicano (PRD)

  President: Danilo Medina

  Vice-president: Margarita Cedeño de Fernández

  Secretaries of state

  Agriculture: Luis Ramón Rodríguez

  Culture: José Antonio Rodríguez

  Economy, planning & development: Temístocles Montás

  Education: Josefina Pimentel

  Environment: Bautista Rojas Gómez

  Finance: Simón Lizardo

  Foreign affairs: Carlos Morales Troncoso

  Industry & commerce: José del Castillo

  Interior & police: José Ramón Fadul

  Labour: Maritza Hernández

  Presidency: Gustavo Montalvo

  Public administration: Ramón Ventura

  Public health: Freddy Hidalgo

  Public works: Gonzalo Castillo

  Sports: Jaime David Fernández

  Tourism: Francisco Javier García

  Women: Alejandrina Germán

  Youth: Jorge Minaya

  Attorney-general

  Francisco Domínguez Brito

  Central Bank governor

  Héctor Valdez Albizu

  December 12, 2012

• Outlook

  Dominican Republic: Key developments

  Outlook for 2013-17

  • The president, Danilo Medina of the Partido de la Liberación Dominicana, will benefit from a two-thirds majority in the legislature until the elections in 2016. In the short term, he faces popular discontent with his fiscal reforms.
  • Tax increases and other reforms will be implemented in 2013, initially without IMF support. However, the Economist Intelligence Unit expects the government to negotiate a new IMF loan accord at some point next year.
  • Revenue-raising measures and spending cuts will lower the central government deficit from around 6.8% of GDP in 2012, to 3.6% of GDP in 2013 and under 2% by 2017, but lax budget management carries a high slippage risk.
  • Subdued growth in the US and the euro zone, along with fiscal adjustment at home, will hold back Dominican growth. We expect expansion of 3.6% in 2013 and an average of 4.4% in 2014-17-far below the 5.9% average of 2007-11.
  • Tax rises will put upward pressure on prices in 2013, pushing year-end inflation to 6%. After easing in 2014, inflation will increase again gradually as oil and other commodity prices begin to rise.
  • The current-account deficit is forecast to shrink to 5.6% of GDP in 2013 from an estimated 7.1% of GDP in 2012, helped by rising mineral and free-zone exports, as well as tourism receipts. It will average 5.5% of GDP in 2014-17.

  Review

  • Mr Medina completed his first 100 days in office. The first public opinion poll of his administration showed him with an approval rating of 54%. His vice-president, Margarita Cedeño de Fernández, had a higher rating, of 60%.
  • The president signed his fiscal reform package into law on November 10th. It will provide an additional Ps46bn (US$1.2bn) in tax revenue next year, to help to narrow a fiscal deficit that was otherwise forecast to be 5.8% of GDP.
  • Tax reforms have ignited popular protests. Demonstrators are demanding accountability for the fiscal crisis and action against corruption. The former president, Leonel Fernández, gave a speech to defend his administration.
  • The IMF concluded an Article IV review under the last stand-by agreement, which expired in March. It highlighted concerns about fiscal performance and recommended a post-programme monitoring process, not a new loan accord.
  • Annual consumer price inflation rose slightly in October, to 2.8%, from 2.6% a month earlier. The month-on-month inflation rate was 0.24%. Core inflation, which excludes volatile food and energy prices, was 3.3% year on year.

  December 12, 2012

Economy:

• Background

  Dominican Republic: Country fact sheet

  Fact sheet

  Annual data		2011a	Historical averages (%)		2007-11
  Population (m)		9.6	Population growth		1.3
  GDP (US$ m; market exchange rate)		55,433b	Real GDP growth		5.9
  GDP (US$ m; purchasing power parity)		112,086	Real domestic demand growth		6.1
  GDP per head (US$; market exchange rate)		5,792	Inflation		6.6
  GDP per head (US$; purchasing power parity)		11,712	Current-account balance (% of GDP)		-7.4
  Exchange rate (av) Ps:US$		38.23b	FDI inflows (% of GDP)		4.5
  a Economist Intelligence Unit estimates. b Actual.

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  Background: From independence in 1844 to 1961, the Dominican Republic was dominated by caudillos ("strongmen"), of whom Rafael Leonidas Trujillo (1930-61) was the most powerful and influential. After a period of internal strife, the Dominican Republic established a functioning democracy in 1978. In the mid-1980s the country opted for a more open development strategy centred on free-trade zones (FTZs), tourism and remittances. Notwithstanding a major financial crisis in 2004, the strategy has delivered strong economic growth, but social development has been disappointing.

  Political structure: The Dominican Republic is a representative democracy with a US-style Congress and presidency. The president has executive power, appoints a cabinet and holds office for four years, with consecutive re-election for a second term no longer allowed under reforms to the constitution adopted in January 2010. Legislative power rests with a bicameral Congress, with both houses directly elected for a period of four years (the 2010 election was for an exceptional six-year term, in order to unify congressional and presidential elections in 2016). The Senate (the upper house) has 32 members and the Chamber of Deputies (the lower house) has 183 members. The judicial system is composed of local justices, a Supreme Court, an Electoral Court and a Constitutional Court.

  Policy issues: The president, Danilo Medina of the Partido de la Liberación Dominicana (PLD), took office for a four-year term in August 2012. This marks the third consecutive term for the PLD. Mr Medina will command a majority in the legislature until 2016, allowing fairly easy passage of reforms. Policy will focus on narrowing the fiscal deficit while pursuing an ambitious social agenda, including education reforms and programmes to alleviate poverty. A new IMF loan agreement is likely to be negotiated in 2013.

  Taxation: Reforms in 2011 raised business taxes. The highest income tax rate is 25%, and corporate income is also taxed at 25%. The base rate of the value-added tax (known locally as ITBIS) will rise from 16% to 18% from 2013 under recently approved tax reforms. Excise taxes on some goods will also rise, and incentives in some productive sectors will be reduced.

  Foreign trade: Export earnings grew by 26.4% in 2011, as external demand recovered and output and export of nickel resumed. Free-zone exports jumped by 15.8%. Imports rose 12.5%, owing mostly to an upsurge (35.7%) in the oil bill. The trade deficit fell to 16% of GDP, from 17.1% in 2010. The current-account deficit fell to 8.1% of GDP in 2011, from 8.7% in 2010.

  Major exports 2011	% of total	Major imports 2011	% of total
  Free-trade zones	57.2	Fuels	26.8
  Ferro nickel	3.4	Consumer goods	23.2
  Sugar & derivatives	2.4	Raw materials	21.3
  Cocoa & derivatives	2.2	Free-trade zones	16.6
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  US	49.3	US	43.4
  Haiti	16.9	Venezuela	7.1
  China	3.3	Mexico	6.0
  Netherlands	2.5	China	5.7

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  December 12, 2012

• Structure

  Dominican Republic: Economic structure

  Data and charts: Annual trends charts

  
  

  

  November 20, 2012

• Outlook

  Dominican Republic: Country outlook

  Dominican Republic: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: Danilo Medina, of the centrist Partido de la Liberación Dominicana (PLD), took office for a four-year term on August 16th, after winning the May 20th election. His party's two-thirds majority in Congress will help him to push through his agenda, including fiscal, social and education reforms. The rival centre-left Partido Revolucionario Dominicano (PRD) suffers from debilitating internal divisions. This, together with its minority position in Congress, will prevent it from presenting a major challenge to the government's plans. In the short term, however, the PRD will attempt to take advantage of an upsurge of popular discontent with the new government's fiscal measures.

  ELECTION WATCH: The next elections will be held in May 2016, when presidential and congressional contests will take place simultaneously for the first time since 1994. By lengthening the intervals between disruptive electoral campaigns, this will improve governability and reduce excessive pre-election spending by the governing party. The opposition PRD will remain weak after its loss in the last presidential election and, with just 75 of 215 legislative seats, will have limited influence. To rectify this, it will need to restore internal unity before the 2016 elections, as divisions between the PRD's presidential candidate, Hipólito Mejía, and the party's president, Miguel Vargas Maldonado, contributed to its electoral defeat. It will also need to provide space for new, younger leaders and find a more viable candidate for its next presidential bid. For the PLD, Mr Medina must stand down in 2016, as reforms to the constitution in 2010 banned consecutive re-election. His predecessor, Leonel Fernández, could seek the PLD's nomination again in 2016, although there may be strong internal opposition to his bid for a fourth term. Until then, he will retain a degree of influence through his wife, Margarita Cedeño de Fernández, who is now the vice-president and will lead the government's social programmes.

  INTERNATIONAL RELATIONS: Relations with the US will remain close, with a focus on security and drug-trafficking challenges, and on trade and investment ties under the Dominican Republic-Central America Free-Trade Agreement (DR-CAFTA). The two countries signed new security agreements in July, addressing the drug trade and human-trafficking, as well as maritime and aviation security. Relations with the EU will be underpinned by an Economic Partnership Agreement (a reciprocal trade agreement) signed in 2008. Within Latin America, Mr Medina will foster closer ties with Brazil and Colombia, although international engagement in general will diminish, as he appears less interested than Mr Fernández in playing a role on the international scene. Relations with Venezuela will be anchored by preferential oil-financing terms under the PetroCaribe programme (which the Economist Intelligence Unit assumes will remain in force following the re-election in October of the Venezuelan president, Hugo Chávez) and a joint refinery investment in the Dominican Republic. The government will collaborate with its Haitian counterpart and has proposed discussing a bilateral free-trade agreement (FTA). However, chronic tensions surrounding illegal migration will persist, as Haiti will remain politically and economically weak, spurring emigration to the Dominican Republic.

  POLICY TRENDS: Policymaking will be influenced by the Dominican Republic's vulnerability to external shocks, such as a potential escalation of the euro zone debt crisis, a renewed slowdown in US growth, and a spike in oil and food prices. The new government's domestic agenda will be broadly guided by the Estrategia Nacional de Desarrollo 2010-30 (END, the National Development Strategy), approved by Congress in early 2012, which focuses on long-term development goals such as poverty reduction, elimination of illiteracy, and support for small and medium-sized enterprises. However, the scope for policy manoeuvre and for investment to meet such goals will be restricted in the near term by the weak state of the public finances.

  ECONOMIC GROWTH: Amid persistent strains in the world economy, particularly in the euro zone, we expect another year of weak world GDP growth in 2013, albeit improving slightly from 2012. We forecast that the US economy will grow by 2.1%, providing little in the way of added stimulus for the Dominican Republic, which depends on the US for trade, investment, remittances and tourism. Following an estimated slowdown in Dominican GDP growth to 3.8% in 2012 (growth in January-September was 3.9%, according to preliminary data from the Banco Central de la República Dominicana, or BCRD, the Central Bank), we forecast a further easing of growth, to 3.6%, in 2013. Domestically, government belt-tightening to cut the large fiscal deficit will produce a contraction in real terms in public consumption, while tax increases will dampen growth in private consumption. Growth will be supported primarily by exports, as new mining supply comes on stream and tourism continues to recover well.

  INFLATION: Consumer price inflation rose modestly to 2.8% in October (from 2.6% in September), but this is still well below the BCRD's central target of 5.5% for the year. We expect inflation to end 2012 at 3.6%, but it will rise to 6% at year-end 2013, in response to tax rises, particularly those affecting the critical fuel tax and value-added tax (VAT). It will then ease in 2014 before starting to edge up again in 2015, under pressure from rising oil and other commodity prices. Given the country's dependence on imported fuel, any sudden surge in oil prices to levels higher than our current projections would present a significant risk to this forecast.

  EXCHANGE RATES: We expect a gradual depreciation of the peso over the forecast period. After ending 2012 at an estimated Ps39.7:US$1, the currency is forecast to weaken to around Ps46:US$1 by the end of 2017. Nominal depreciation will average around 3% per year in 2013-17 and, with inflation easing slightly, the real exchange rate will remain largely stable. The peso has been less volatile than other emerging-market currencies recently, but loss of confidence related to the weak fiscal accounts or a possible drying up of liquidity arising from a deepening of the euro zone sovereign debt crisis could lead to increased fluctuations in the foreign-exchange market.

  EXTERNAL SECTOR: The current-account deficit will be strongly influenced by the price of oil (oil and derivatives account for about one-third of non-free-zone imports). After the deficit shrank by 8.5% in the first half of 2012 (latest data available), we estimate that it will narrow as a share of GDP to 7.1% for the year as a whole, on the back of rising ferro-nickel exports, the start of gold exports and growth in tourism inflows. It will shrink further in 2013, to 5.5% of GDP, as gold output and exports go fully on stream and tourism receipts grow. The trade deficit as a share of GDP will continue to decline, to 12.2% in 2013 and 11.8% in 2014-15, but will increase modestly thereafter as the global price of oil begins to rise. The surplus on the services account will stay steady, at 5.9% of GDP on average throughout the forecast period, while the current transfers surplus will average 5.2% of GDP in 2013-17, compared with 7.6% of GDP in 2006-10, as workers' remittances grow more slowly. After exceptionally strong foreign direct investment (FDI) inflows in 2012 (which we estimate at US$3.2bn), largely because of a one-off acquisition of a local brewer by Brazilian-Belgian AB InBev), a more moderate level of FDI will resume, with inflows averaging nearly US$2.5bn (or 3.6% of GDP) in 2014-17, covering around 65% of the forecast annual current-account deficit. International reserves will continue to grow, although import cover will remain low, at around 2.5 months, during the forecast period.

  December 01, 2012

• Forecast

  Dominican Republic: Country forecast summary

  Country forecast overview: Highlights

  • Danilo Medina, of the incumbent Partido de la Liberación Dominicana (PLD), took office as president for a four-year term on August 16th. He will benefit from a two-thirds majority in Congress, which will ease passage of reforms and support stability until the next presidential and congressional elections are held in 2016. The opposition Partido Revolucionario Dominicano (PRD) will be hobbled by internal divisions, and will need to undergo an internal overhaul if its chances in the next elections are to improve.
  • Mr Medina's first priority will be to shrink the large fiscal deficit inherited from his predecessor. Fiscal reforms, comprising mostly tax rises and other revenue-generating measures but also some spending cuts, will be implemented in 2013. The measures have sparked some popular protests, but they are necessary in order to retain investor confidence and pave the way to receive IMF financing. A new IMF agreement is likely to be negotiated in 2013, after the fiscal reforms start to show results. The new government has also promised education and healthcare reforms as part of an ambitious social agenda.
  • Institutional weaknesses and vested interests threaten progress on the reforms needed to put the public finances on a sustainable footing. We forecast the deficit will fall to 3.6% of GDP in 2013 (from an estimated 6.8% of GDP in 2012) and to just under 2% of GDP in 2017. However, given the recent history of lax budget management, the risk of overspending will be high, especially as the 2016 elections approach. The burden of electricity subsidies will remain high until the troubled power sector is reformed and tariffs are raised to reflect costs.
  • Subdued growth in the US and the euro zone, and fiscal adjustment at home, will restrain Dominican growth. We expect expansion of 3.6% in 2013 and an average 4.4% in 2014-17-well below the 5.9% average of 2007-11. Growth will be driven largely by expansion of mineral exports and tourism. Inflation will rise to 6% at end-2013, owing to tax increases, but will ease in 2014 before edging up again as global oil prices rise. The peso will weaken slightly but remain broadly stable in real terms. The current-account deficit will shrink to 5.6% of GDP in 2013 as mineral exports increase, and average 5.5% of GDP in 2014-17.
  • Foreign direct investment will average nearly US$2.5bn annually in 2013-17 (averaging 3.6% of GDP), covering 65% of the forecast annual current-account deficit. However, the investment climate will be suboptimal, owing to poor competitiveness fundamentals, low skill levels and infrastructure deficiencies. Efforts to revamp the electricity industry will proceed, but power supply problems will remain a drag on business conditions during the forecast period.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	3.8	3.6	4.0	4.3	4.7	4.4
  Consumer price inflation (av; %)	3.7	5.4	4.8	4.9	5.1	5.4
  Budget balance (% of GDP)	-6.8	-3.6	-2.5	-1.8	-2.0	-1.8
  Current-account balance (% of GDP)	-7.1	-5.6	-5.1	-5.4	-5.7	-5.9
  Exchange rate Ps:US$ (av)	39.24	40.40	41.30	42.57	43.93	45.30
  Exchange rate Ps:€ (av)	50.38	51.00	51.73	52.68	55.35	57.04

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  December 12, 2012

View detailed map

Country Briefing

Land area

48,511 sq km

Population

9.9m (2010 Central Bank estimate)

Main towns

Population in '000 (2002 census)

Santo Domingo (capital) & metropolitan area: 2,731

Santiago: 908

Puerto Plata: 313

San Pedro de Macorís: 302

Climate

Subtropical

Weather in Santo Domingo (altitude 14 metres)

Hottest month, August, 23-31°C (average daily minimum and maximum); coldest month, February, 19-28°C; driest month, March, 19 mm average rainfall; wettest month, June, 185 mm average rainfall

Language

Spanish

Measures

Metric system, although the tarea is often used: 6.4 tareas=1 acre; 15.9 tareas=1 ha

Currency

1 peso (Ps) = 100 centavos; average exchange rates in 2011: Ps38.1:US$1; Ps52.9:€1

Time

4 hours behind GMT

Public holidays

January 1st, 6th, 21st and 26th; February 27th (Independence Day); Good Friday; May 1st; Corpus Christi; August 16th (Restoration Day); September 24th; November 6th (Constitution Day); December 25th

March 14, 2012