Its charms are known to millions of tourists and its clothing exports are worn by countless Americans. Its people have established a huge US presence: some one million emigrants earn their living there, and New York can claim to be the second Dominican city after Santo Domingo.
Its economic performance has also been among the world’s most outstanding of recent years. Just as Sammy Sosa, its big-hitting baseball star, has consistently been knocking in a sackful of home runs over the past few seasons, the Dominican Republic has been regularly at the top of the macroeconomic score charts. Its 7.7% average annual growth since 1996 has been the fastest in Latin America.
Even so, and despite significant foreign investment here in recent years, this Caribbean nation of 8.5 million people feels that getting itself onto investors’ maps has not been an easy task. So there is hope that its first sovereign bond issue, $500m of 5-year global bonds sold in September, will have marked a significant step forward in highlighting what the country has to offer beyond baseball and cigars.
“We have realised the Dominican Republic was totally unknown in the US and Europe. I would say one of the best contributions of this operation is that we have been able to tell people about the Dominican Republic,” says Andrés Dauhajre, executive director of the unit in charge of the government’s medium-term external financing program. “People didn’t know about its successful economic management over the last five years.”
Yet even as the debut bond was cementing the country’s relationship with Wall Street, the Dominican Republic was entering perhaps its most uncertain period for years. With its economy closely linked to that of the US, the global economic turmoil, heightened in the wake of the terrorist attacks in the US on September 11, is likely to have sharp effects on the Republic’s growth and prospects.
In particular, uncertainty now hovers over three key sectors of the Dominican economy: tourism, the largest single foreign currency earner, could be severely affected by international reluctance to travel; exports from the country’s ‘free zones’, mainly textiles, account for more than 80% of exports and go predominantly to the US. An economic downturn in the US could see demand and exports shrink; remittances, principally from Dominicans in the US, were worth $1.7 billion last year, financing almost half of the trade deficit. Again, a US recession could reduce the value of those remittances.
Handling the shake-out in these and other sectors will prove a significant challenge for the government of President Hipólito Mejía, the agronomist from the Dominican Revolutionary Party (PRD) who was elected last year to serve a four-year term.
A related challenge is to make sure, as Mejía has pledged, that the accumulated benefits of such a period of strong growth are spread equally to all sectors and areas of the country. Around one in five officially lives in poverty.
Mejía enjoys strong party support in the country’s bicameral congress and since taking office in August 2000 has consequently been able to push through several reforms that had languished under the previous minority administration of Leonel Fernández. But some observers express concern that the Mejía government has brought too many of its own supporters into civil service positions, undermining the country’s weak institutions and putting a brake on progress.
Before the US attacks the country’s economy was expected to grow 3% this year, still respectable in the context of sluggish growth and recession in other areas of Latin America, but a dramatic cooling from previous years.
It is not just the domestic audience that wants President Mejía to find the right policies to face this uncertain period. His administration knows that by issuing the first sovereign bond, it has in some way stepped voluntarily into a policy straitjacket. The bond issue brings with it the need to demonstrate the disciplined approach demanded by the markets.
In the words of one observer with close ties to Wall Street, the Dominican Republic – like many of its own baseball players – has now stepped up to the major leagues, and must prove it deserves its place there. >