On February 27th, President Danilo Medina of the centrist Partido de la Liberación Dominicana (PLD) gave his first annual address to the national Congress, commemorating the country's independence. He focused on the social and developmental aspects of his agenda-education, employment and health-that dominated his discourse during his 2012 election campaign and his first six months in office. However, Mr Medina did not mention other critical issues, including the difficult fiscal situation, which has been the key topic of national discussion since he took office and is widely understood to be the government's main priority. He did, however, present important initiatives for the electricity and mining sectors, which, if carried out, will define much of his four-year term.
Mr Medina referred to the progress made towards the social objectives outlined in his inauguration speech on August 16th, most notably the allocation of the equivalent of 4% of GDP to the education sector in the 2013 national budget, an unprecedented apportionment, as well as the January launching of a national literacy campaign and expansion of public health services. He also presented a series of initiatives for the near term. Within education, these include plans to increase primary school attendance, lengthen the school day, provide public-led day-care facilities, widen the scope of the school breakfast programme and construct 10,000 new classrooms. Within public health, he promised new hospitals and an increase in healthcare coverage. He also pledged public-private partnerships to construct public housing to address a large housing deficit, estimated at 1.2m units in 2012.
Healing the electricity sector
Mr Medina also presented his proposal for the country's ailing electricity sector, which has long been plagued by inefficiencies and shortages, and has been an enormous burden for the public finances (an estimated US$5bn was spent in direct subsidies to the sector in 2008-12). Part of the plan is to increase generation via the construction of two 300-MW coal-fired plants. He also said that his government would tackle non-payment and fraud by users once and for all, which account for most of the losses in distribution (currently 36%).
Presumably, the strategy delineated will now be discussed with an Economic and Social Council (made up of representatives of government, business and civil society) empowered to negotiate education, fiscal and electricity sector reform, as outlined in the Estrategia Nacional de Desarrollo 2010-30 (END, the National Development Strategy) that is to lead policymaking through 2030. However, tax increases were introduced at the start of the year with relatively little input from this council.
Barrick under the spotlight
A large part of the speech was dedicated to the announcement that the government would demand renegotiation of a contract for a US$3.7bn gold mine in Pueblo Viejo granted to Barrick Gold (Canada). The Dominican Congress approved the contract, and it was signed by then-President Leonel Fernández, in 2009. In the past few months the legislature has requested a revision to the contract in order to account for an increase in the price of gold. Mr Medina's statement was received with a standing ovation from the audience, but was met with scepticism from critics who fear that a falling-out between Barrick Gold and the Dominican government could negatively impact prospects for future foreign investment, particularly in the growing mining sector.
Should the president succeed in revising the contract with Barrick, he will probably boost his already high public approval rating (it stood at a healthy 82% in January, according to a Gallup poll). Contract changes might also ease pressure on his administration to introduce additional austerity measures and tax increases in order to address the weakened public finances he inherited from the previous administration. Newly released Central Bank data reveals that the fiscal deficit was a large 6.6% of GDP in 2012 (up from the government's previous estimate of 5.45 of GDP).
What was left unsaid
Mr Medina's speech left out several important issues. It is not yet clear how the government plans to finance this year's fiscal deficit, which is officially estimated at around 2.8% of GDP on the basis of the (optimistic) assumption that revenue will increase by 20% and that public spending will be under control. The Economist Intelligence Unit expects, however, that the government will not be able to achieve its revenue goals, and we therefore forecast a deficit of 3.6% of GDP instead.
Nor did the president refer to the issue of corruption and the need for more transparency in public finances. Indeed, his administration has not focused on these matters despite pledges to the contrary when Mr Medina was inaugurated. Although he did make some small adjustments in the expenditures of some ministries upon taking office, he has only approached the issue of transparency timidly. This is despite the dozens of peaceful protests during his early months in office demanding accountability for alleged wasteful government spending by the previous administration.
No new cabinet positions, but still early days
Mr Medina did not make any changes to his cabinet, as is customary following the annual congressional address. In the past, cabinet have often been revamped via presidential decrees within days or a week after the speech. However, Mr Medina may well choose to keep his team intact as a sign of continuity and stability.
March 01, 2013
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
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
March 20, 2013
Outlook for 2013-17
Review
March 20, 2013
Fact sheet
| Annual data | 2012 | Historical averages (%) | 2008-12 |
| Population (m) | 9.7 | Population growth | 1.3 |
| GDP (US$ m; market exchange rate) | 58,058 | Real GDP growth | 5.0 |
| GDP (US$ m; purchasing power parity) | 118,711 | Real domestic demand growth | 4.9 |
| GDP per head (US$; market exchange rate) | 5,988 | Inflation | 6.1 |
| GDP per head (US$; purchasing power parity) | 12,243 | Current-account balance (% of GDP) | -7.8 |
| Exchange rate (av) Ps:US$ | 39.34 | FDI inflows (% of GDP) | 4.9 |
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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. An IMF post-programme monitoring agreement in 2013 provides some policy supervision but no new loans or conditionality.
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) rose from 16% to 18% in January 2013 as part of fiscal reform package. Excise taxes on some goods also rose and incentives in some productive sectors were reduced.
Foreign trade: Export earnings grew by just 5.4% in 2012, as external demand remained weak. Free-zone exports increased by a mere 2.1%. Import growth also slowed, to 1.8%, in part because the price of oil stabilised (the oil bill rose by just 2.8%). The trade deficit fell to 14.9% of GDP, from 15.9% in 2011. The current-account deficit fell to 7.3% GDP, from 8% in 2011.
| Major exports 2011 | % of total | Major imports 2011 | % of total |
| Free-trade zones | 56.7 | Fuels | 26.8 |
| Ferro nickel | 3.4 | Consumer goods | 23.1 |
| Sugar & derivatives | 2.4 | Raw materials | 21.4 |
| Cocoa & derivatives | 2.1 | 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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March 20, 2013
Data and charts: Annual trends charts
March 20, 2013
Dominican Republic: Country outlook
FROM THE ECONOMIST INTELLIGENCE UNIT
POLITICAL STABILITY: The president, Danilo Medina of the centrist Partido de la Liberación Dominicana (PLD), will benefit from a two-thirds majority in the legislature until elections in 2016. This will help him to push through his agenda, including fiscal, social and education reforms. The main opposition party, the centre-left Partido Revolucionario Dominicano (PRD), will continue to suffer from debilitating internal divisions. This, together with its minority position in Congress--it has only 75 of 215 legislative seats--will further damage its credibility (after three consecutive defeats in presidential elections) and prevent it from presenting a strong challenge to the government.
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. The lengthening of the interval between disruptive electoral campaigns will improve governability and reduce excessive pre-election spending by the governing party. The opposition PRD will remain weak after its loss in the 2012 presidential election. Its deep divisions are highlighted by ongoing disputes--and recent violence--between the factions led by Hipólito Mejía (a former president and the losing candidate in 2012) and the party's president, Miguel Vargas Maldonado. At this time it appears unlikely that the PRD will overcome its differences sufficiently to present a strong challenge in the 2016 elections. For the PLD, Mr Medina must stand down in 2016, as the constitution, reformed in 2010, bans consecutive re-election. His predecessor, Leonel Fernández, could seek the nomination again, although he is the main target of popular anger about the deterioration in the public finances, and there may be strong internal opposition to his bid for a fourth term. He will retain a degree of influence through his wife, Margarita Cedeño, who is now the vice-president.
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). 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 be less under Mr Medina than under his predecessor, Mr Fernández. Good relations with Venezuela will be anchored by joint ownership of a refinery and preferential oil-financing terms under the PetroCaribe programme. Despite the death in March of Venezuela's president, Hugo Chávez, the Economist Intelligence Unit's baseline forecast is that he will be replaced by the interim president, Nicolás Maduro, in April elections and that PetroCaribe will be retained. The government will collaborate with its Haitian counterpart and has proposed discussing a bilateral free-trade agreement. 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 complicated 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 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 relatively 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 a slowdown in Dominican GDP growth to 3.9% in 2012, we forecast weaker growth of 3% in 2013. 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 goods and services exports, as new gold production come on stream and tourism continues to recover well.
INFLATION: Annual consumer price inflation rose to 4.8% in January (from 3.9% at end-2012), as tax increases pushed the monthly inflation rate to nearly 1.3%. However, this is still within the target range of 4-6% for the year set by the Banco Central de la República Dominicana (BCRD, the Central Bank). We forecast that inflation will rise to 6.1% at the end of 2013 on the back of tax rises, particularly the 2-percentage-point rise in value-added tax (VAT), to 18% (as well as several excise tax increases). Inflation should 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: After ending 2012 at Ps40.3:US$1, we expect the peso to weaken at a slightly quicker pace in 2013, to end the year at Ps42.2:US$1 for a nominal depreciation of 5.2% (and a real weakening of 1.1%). This is in line with the 2013 budget assumptions, which imply that the BCRD will allow a sharper weakening to improve the competitiveness of exports, and assumes that subdued domestic demand will curb the inflationary impact of a weaker currency. A slightly slower pace of devaluation thereafter will put the currency at Ps47.4:US$1 at end-2017. Nominal depreciation will average 3% per year in 2014-17 but the peso will be broadly stable in real terms. The peso has been less volatile than other emerging-market currencies of late, but loss of confidence related to the weak fiscal accounts or unexpected difficulties encountered in financing the fiscal deficit could lead to increased fluctuations in the foreign-exchange market.
EXTERNAL SECTOR: The current-account deficit will be strongly influenced by the price of oil (oil and derivatives account for about one-third of non-free-zone imports). After narrowing to 7.3% of GDP in 2012, the current-account deficit is forecast to ease further to 5% of GDP in 2013 and 4.3% of GDP in 2014 on the back of rising ferro-nickel and gold exports (commercial output of gold began in January 2013) and growth in tourism and remittances inflows. The deficit will begin to widen again in 2015 as oil prices increase and import demand picks up.
March 25, 2013
Country forecast overview: Highlights
Country forecast overview: Key indicators
| Key indicators | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
| Real GDP growth (%) | 3.9 | 3.0 | 3.9 | 4.4 | 4.7 | 4.4 |
| Consumer price inflation (av; %) | 3.7 | 6.4 | 4.2 | 4.9 | 5.1 | 5.4 |
| Budget balance (% of GDP) | -6.7 | -3.6 | -2.5 | -2.2 | -2.4 | -1.8 |
| Current-account balance (% of GDP) | -7.3 | -5.0 | -4.3 | -4.5 | -4.9 | -5.1 |
| Exchange rate Ps:US$ (av) | 39.34 | 41.39 | 42.63 | 43.88 | 45.27 | 46.65 |
| Exchange rate Ps:€ (av) | 50.57 | 55.05 | 55.95 | 55.72 | 57.04 | 58.84 |
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March 20, 2013
Land area
48,511 sq km
Population
9.38m (2010 census, preliminary results)
Main cities/provinces
Population in '000 (2010 census, preliminary results):
Santo Domingo national district (capital): 935
Santo Domingo province: 2,359
Santiago province: 943
San Cristóbal province: 557
La Vega province: 379
Puerto Plata province: 328
San Pedro de Macorís province: 300
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: Ps38.2:US$1; Ps53.2:€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
January 03, 2013