- Why is Dominican Republic improving in your opinion? Is it due to political stability or a resilient economy?
In my view, the DR’s economic performance can be attributed to a combination of factor that includes good policy and, perhaps, good luck. Let me elaborate a little bit. The pandemic found the DR with relative strong macroeconomic fundamentals as inflation was low and economic growth high. Also the smooth political cycle change in 2020 gave the private sector the needed confidence to assume policy continuity with the new ruling political party (after 16 years under the Dominican Liberation Party, voters elected the opposition Modern Revolutionary Party headed by current president Luis Abinader).
President Abinader chose not to replace the central bank governor as his experience was perceived a needed to face the policy challenges of the pandemic, which was welcomed by the private sector, especially financial institutions and creditors.
To absorb the pandemic shock, the DR’s central bank implemented a broad set of expansionary monetary measures, including MPR reductions and liquidity provision pushing interest rates downwards. On the fiscal front, although in 2020 the government spent in many social programs to help needy households and businesses, in 2021 the fiscal policy has been noticeable conservative. In fact, the public sector has effectively controlled government expenses so fiscal policy remains less expansive than expected; and the government has ruled out implementing a fiscal reform in the short term.
Also, the fast recovery of the US economy has meant a fast recovery of sectors linked to international trade, especially free zones and tourism. Also remittances have increased substantially.
As a result, according to official data, economic activity is expected to grow at around 10% for 2021, while improvements in the labor market continue. Recently, the DR government estimated the economy just reached the employment level prior to the pandemic.
It is important to say that, to face the challenges of the pandemic, the DR has increased its public debt substantially. Consolidated public debt would have reached 69.2% of GDP in 2020, which implies an increase of 18.7 percentage points of GDP compared to 2019.
2. How has the pandemic had an impact, how is the country coping with it, and what is the outlook for key exports and the tourism industry?
As a recent study reveals, the impact of the coronavirus meant losses in the level of production, higher levels of unemployment and depreciation of the real exchange rate. Not different as what happened in many countries. The pandemic shock not only implied a fast raising unemployment, but also falling tax revenue as the government had to spend more con face the covid-19 outbreaks. Nonetheless, the DR was quick to start vaccinating massively its population against the virus while gradually lifting mobility restrictions coupled with economic policy stimulus. It is important to mention that private sector responded as expected to the monetary policy stimulus. In fact, according to the DR’s central bank, As a result of the expansive monetary policy stance, market interest rates have fallen to historical lows and loans to private sector have grown strongly at around 10 per cent.
The external sector continues to improve, with higher tourists arrivals and sustained growth of remittances and exports. Exports are over 24% up by august 2021, while tourists arrivals grew over 90% during the same period, thus current account deficit projections for 2021 are 1.0%-1.6% of GDP, according to the Central Bank of the Dominican Republic.
Further improvements from the external sector of the Dominican economy are linked to the evolution of the pandemic both domestically and internationally.
3. Has corruption improved as a result of the long running trial involving Odebrecht?
As the Dominican government has pledged an independent prosecution against corruption (free of political interference), public confidence in democratic institutions seems to have arisen as the public perceives less tolerance for corruption in the government.
In fact, in one year president Luis Abinader has dismissed some high ranking government officials including ministers due questionable behavior while in duty just to signal no tolerance to corruption in his administration.
4. Any other comments you wish to make e.g. foreign policy (Haiti), the currency, institutional risks, bank stability?
Haiti is the main national security threat to the Dominican Republic as the instability in the neighboring country grows and migratory pressures increases. Nonetheless, the Dominican Republic government is establishing alliances with other nations, especially Panama and Costa Rica (which seems to be well seen by the US government) in order to face those challenges involving those countries’s private sector and looking to promote investments along the DR-Haiti border as well as in Central America.
