The Dominican Republic during 1990 - 1999:
A Decade of Economic Growth

By Dr. Leonel Fernández
President of the Dominican Republic, 1996 - 2000

On deciding to come to Haiti, on the occasion of this seminar, I had to choose whether to come by plane or by land. I decided the latter, and it was not without a reason. I wanted to grasp the feeling of the Haitian people in its daily struggles to improve its human condition, to be a witness of hope, and to reaffirm my admiration for a Nation that has conquered a place in history and the hearts of many.

Tonight, I feel honored to be here with you sharing some ideas and experiences of how we, in the Dominican Republic, have been able to prosper and advance amidst great pessimism, numerous obstacles and insurmountable difficulties.

Even though many have called it an "economic miracle", and others have referred to it as "The Dominican Model", we modestly believe that the modernization of the Dominican economy and society during the past ten years has been the result of a hard working nation and a sound mix of government policies and private sector initiatives.

After stalling during the "Lost Decade" of the 1980's — an economic recession that ended in 1991 — the Dominican Republic was able to renew its economic growth along a new and more dynamic path during most of the 1990's, specially during the last five (5) years.

A stable macroeconomic environment, characterized by strict government spending and adequate investments in physical and human infrastructure was combined with cautious monetary and exchange rate policies. All of this led toward a gradual opening of our economy to trade and investment, making the Dominican Republic more competitive in the global economy.

The growth experienced by the Dominican economy during the 90's would have not taken place without an adequate political environment.

Since Trujillo's death in 1961, the Dominican Republic has been struggling to establish a democratic regime, and over the years, and through various electoral processes, has consolidated a Constitutional government that respects the rule of Law, protects human rights, and creates economic opportunities.

Through democracy, the Dominican Republic has learned to settle domestic conflicts through open dialogue and consensus building.

In 1994, after a difficult and traumatic electoral process, we amended our Constitution without any violence, shooting or bloodshed. Four years later, after many strikes and riots, we held a National Dialogue in which more than three millions people were consulted through their civic organizations to express their views on the fifteen most sensitive issues concerning Dominican Society.

There are other important factors that have enabled our transition to a more modern political and economic system: An active civil society pushing for better governance and a more dynamic private sector investing in the economy.

The Dominican Republic's GDP was 69% larger in 1999, in real terms (discounting inflation), than in 1990, thus averaging an annual growth rate equal to 6.1% during the whole decade.

During my administration, from 1996 to 2000, the average annual growth rate was 8.5% in real terms, which represented an average of nearly 7% growth in the per capita income of the Dominican Republic.

The Fundamental Reform: Looking outward and forward

Even though the first experiments with producing exportable goods and services started back in the 1970's, when the first free zone and the first hotel resort were established in La Romana, it was not until later that their success encouraged the government to create tax incentives in order to stimulate the national entrepreneurs to invest and develop these productive areas.

Back in the 1970's and 1980's, the import substitution model was still widely applied in Latin America and of course in the Dominican Republic. During those years, this inward looking development model, created to promote industrialization, confined our business community to a noncompetitive environment.

In the earlier part of the 90's substantial reforms were initiated. Tariffs were lowered, a new and improved Tax Code was implemented and the financial system was reformed. Also, a new Labor Code more geared toward worker's rights was approved, the free zone legislation was condensed in a single Free Zone Law and a New Foreign Investment Law assured equal treatment for national and foreign investors alike.

After 1996 a second wave of reforms began to take place. The Public Enterprise system was reformed. The Electrical Company, CDE, was capitalized and the private sector invested in independent power generation. The telecommunication sector was revamped. A Security Markets Law was approved, as well as legislation regarding industrial and intellectual property. Tariffs on textile and agro industrial inputs were eliminated to stimulate exports of apparel and food products, and two Goods and Services Free Trade Agreements (FTAs) and Investment Treaties were signed with the 19 nations that comprise the Caribbean Community (CARICOM) and the Central American Common Market (CACM).

Other reform processes were started but are still pending final consensus and legislative approval. These include another Tariff Reform Law, that will further reduce tariffs and tariff categories, a Tax Reform Law to compensate government for the revenues it will loose by reducing tariffs, the Monetary and Financial Code, the General Electricity Law, Social Security Reform, and parts of the Market Organization Code.

It is in the 1990's that the fundamental changes in the Dominican economy have occurred.

These changes, which have created what is called The New Economic Policy (NEP), seek to improve the competitiveness of the Dominican Republic within the global economy.

To what extent this has been obtained, can be appreciated in the fact that during the decade Dominican exports and imports of goods and services more than tripled, exports grew by 344%, while imports grew by 330%.

During this period the total volume of our trade went from being the equivalent of 38% of our GDP, to 141% of our GDP. In other words, our trade went from a volume equal to less than half of GDP to a volume almost one and a half times larger than our GDP by the end of the decade; from being a fraction of our GDP to being a multiple of our GDP.

We reduced our foreign debt by 20% from 4,499 million Dollars in 1990 to 3,636 million dollars in 1999. While we promoted foreign investments from around 25 million dollars annually at the beginning of the 1990's to a record figure of 1,353 million dollars in 1999. That was another fundamental change that has had a substantial impact on our economy and our people's future, because this investment has not been in liquid, volatile and unstable forms, but rather in sound real estate hotel and industrial free zone operations.

During this period, remittances from the Dominican population living abroad, mainly in New York have increased dramatically, five-fold, from some 300 million Dollars annually during 1990 to 1,500 million Dollars during the year 1999. Therefore, the flow of foreign investments and remittances has reached a record level of close to 2,900 million dollars in 1999.

Foreign investment is welcome in the Dominican Republic and promoted by the Government and the private sector. Foreigners invest in all sectors of the economy but the most impressive growth over the longest period of time has been registered in the free zone and the tourism sectors.

Free zone exports climbed from insignificant levels of less than one million dollars in 1970, to 117 million dollars in 1980, to 850 million dollars in 1990, and to more than 4,300 million dollars in 1999 — four times the exports of 1990. The number of free zone parks rose from 25 in 1990 to 46 in 1999, while the number of firms in those free zones, increased from 331 in 1990, to 484 in 1999. Meanwhile employment in these firms climbed from more than 119,000 in 1990 to more than 212,000 workers in 1999.

Distribution of Free Zone Exports in 1999

Free zone production is heavily concentrated in apparel assembly, which constitutes 56% of the free zone exports. Another 39% of the free zone output is comprised by 5 sectors, which include: electronics (10%), footwear (9%), Tobacco (7%), Jewelry (7%), and pharmaceutical products (6%), while the 5% remaining production is comprised by other non-traditional exports.

The tourism industry has also become one of the most dynamic sectors of the Dominican economy. Hotel rooms for tourists have risen from 19,000 in 1990, to more than 49,000 in 1999, increasing by 161%. Direct and indirect employment generated by tourism rose from around 88,000 in 1990 to more than 224,000 in 1999, that is by 154%. The volume of tourists has also increased dramatically by 124%, form close to 958,000 to almost 2,150,000 tourists in 1999. But the most dramatic increase was that registered by hotel sales, which more than doubled during the decade, from 818 million Dollars to 2,524 million Dollars.

ORIGIN OF TOURISTS THAT VISITED THE D. R. in 1999

Most of the tourists that visit the Dominican Republic come from very few countries. During 1995, 25% of these came from the United States, 21% from Germany, 8% from Canada, 7% from Spain, 6% from Italy, 6% from France, 5% from England, and the remaining 22% from the rest of the world in small quantities.

Another sector, which together with free zones and tourism has reflected an impressive dynamism during the decade, has been the Independent Power Generation (IPP) of electricity. This sector is relatively new and basically started at the beginning of the decade with IPP companies accounting for almost 100 Megawatt Hours of installed capacity.

Accomplishments, Vulnerabilities and Policy Perspectives:

We can safely assume that, even though the Dominican transition toward a more politically and economically free society has not concluded, it is soundly on track. The Dominican Republic is a more modern country now and the Dominican economy is more integrated in the global economy.

Nevertheless, there are significant challenges ahead that must be fully addressed.

Ironically, one of our main strongholds, which is our close relation with the US economy could, in the future, become one of our weaknesses. What will happen to our economy if the U. S. economy slows substantially? Will we able to shift toward the European Union's market fast enough? Will we be able to penetrate the Central American and CARICOM markets substantially enough? Will our trade relationship with Haiti and Cuba be large enough to help us adjust to changes in the U. S. economy?

Other challenges include: the aging and eventual reduction of our "Diaspora", the growing competition from Mexican and Central American industrial free zones and from the other Caribbean tourism centers and the eventual incorporation of Cuba into the regional and U. S. markets as our competitor.

In order to become more competitive and continue growing, we as a nation, must focus on education and health care; on the preservation of our natural resources and the protection of the environment. We should concentrate on improving the quality of our infrastructure and help develop our industry and service sectors, which have developed themselves without any national planning and even without us noticing it initially, until they became about two-thirds of our national output.

Living in the digital age, we now face a new challenge, one that can be transformed into an opportunity if we include information technology as part of our national economic development strategy.

This is something that we already began during my administration with the construction of the Santo Domingo Cyberpark and the Technological Institute of the Americas.

Technology creates the possibility of leapfrogging into a new era of unconceivable opportunities.

Our future is bright and filled with a great potential, but in today's interdependent and interconnected globalized world it can only be truly fulfilled if we are able not only to become more competitive on regional and world markets but also ready to share with our brothers and sisters in Haiti the lessons we have learned in our efforts to construct a free, democratic and prosperous for all society.