Economy in the Dominican Republic
FROM THE ECONOMIST INTELLIGENCE UNIT
The economy of the Dominican Republic is expanding at double-digit rates, according to the latest figures from the country's Central Bank. This is an impressive turnaround from the banking-sector collapse and economic recession of 2003-04. However, the country's lack of competitiveness, institutional weaknesses, a persistent electricity crisis and a slowdown in the US economy are likely to act as brakes on Dominican growth prospects going forward. The Central Bank governor, Hector Valdez Albizu, has revealed that GDP grew by 11.7% in the first half of 2005. For full-year 2006, he forecasts growth of 9.3% (the same rate of growth as in 2005). This is substantially higher than the IMF's most recent estimate for the country of 5.5% for the year (which was published before the latest data was published). In any case, the performance year to date places the Dominican Republic in the ranks of some of the fastest-growing economies in the world, such as China. Within Latin America, only Argentina is growing at a pace close to this rate. Leading growth sectors in the first half were construction (up 32.6%), communications (28%), agriculture (19.6%), mining (10.3%), local manufacturing (78.6%), trade (10.3%) and finance and insurance (8.9%). Tourism grew by a more moderate 6.8%, while the free-zone sector, which manufactures for export, shrank by 8.1%.
The consumer price index increased by 3.49% in the January-June period, according to the bank. With the CPI having risen by 0.9% in July, inflation for the first seven months of the year was 4.41%. The official inflation target is 5-7% for 2006, but soaring oil prices threaten to push inflation beyond this range. High oil prices are also putting pressure on the external accounts and potentially also on the currency. So far, healthy foreign-investment inflows and tight monetary policy have kept the Dominican peso stable at just under Ps33:US$1 since April-at this level it looks overvalued by 10-15%. If oil prices are sustained at US$75 per barrel or above for long, causing inflation to overshoot, pressure on the peso is likely to mount further. Construction continued to be the leading sector, growing by 32.6%, a result primarily of government investment (66%) and foreign investment (US$418.9 million), or 5.1%. The communications sector showed a 28% growth rate, farming was up by 19.6%, mining was up by 10.3%, local manufacturing by 78.6%, trade by 10.3%, and finance and insurance by 8.9%. Tourism registered a 6.8% increase. The export manufacturing zone sector slumped by 8.1%.
Unemployment was down from 19.4% in October 2004 to 16.4% in April 2006. The balance of payments showed a positive RD$1.3 billion; taxes provided 16.2% more in revenues, while government spending was up by 28.3%, primarily due to propane gas and electricity subsidies. Valdez estimated the impact of petroleum imports on local prices. The Central Bank's net international reserves ended the first half of the year at US$1.58 billion, while the international gross reserves reached US$2.13 billion, exceeding the IMF's objectives. In July, the Consumer Price Index showed a 0.9% increase, bringing inflation for the first half of the year to 4.41%.