Decided to simply....
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The Dominican Republic
Sweat and tears
Aug 19th 2004 | SANTO DOMINGO
From The Economist print edition
Can the new president turn around a tottering economy?
PEOPLE in the Dominican Republic have very little to be happy about. As the country's new president, Leonel Fern?ndez, himself pointed out in his inaugural speech on August 16th, the country has seldom been in such bad economic shape. Yet Dominicans welcomed Mr Fern?ndez with fanfare. An enormous sound system was deployed along the palm-lined seaside promenade of Santo Domingo, the capital, and the merengue beat blared out into the small hours. The party may be short-lived, however. To address his country's woes, Mr Fern?ndez is offering a lot of Churchillian belt-tightening and self-sacrifice. This will probably mean sweat and tears, but hopefully no blood.
Until 2001, the Dominican Republic was one of the region's great success stories. With a vibrant tourist industry, a booming ?assembly for export? sector and political stability, the country prospered. Indeed, the fact that Mr Fern?ndez was president from 1996 to 2000?and is thus closely associated with the good years?was the major reason for his victory
Since then, however, the country has come to resemble an old-fashioned banana republic. Since last year, prices have grown by over 50%. The national currency has lost almost half its value in the past two years, and the country is now heavily indebted. There are frequent power blackouts, and poverty has increased to such an extent that many are now prepared to take Cuban-style risks to escape the island. Last week, 55 people died trying to reach the relative prosperity of nearby Puerto Rico.
Some of the problems were inevitable. The recession in the United States hit the country's export industries, and the terrorist attacks of 2001 dampened the thriving tourist sector. But they were compounded by the reckless economic mismanagement of the previous government, led by Hip?lito Mej?a. In 2003, about 20% of the country's GDP went into an overgenerous and otherwise questionable bailout of the country's third largest bank.
Mr Fern?ndez's immediate priority is therefore to tidy up government finances in order to restore confidence in the economy. These are also the conditions for a vital $600m stand-by arrangement with the International Monetary Fund to be revived. To achieve that, the new government has proposed raising taxes. As part of the new era of ?austerity? announced on August 16th, Mr Fern?ndez also promised to cut spending by 20%.
Will he be able to pull this off? Bernardo Vega, a former ambassador to Washington and now a consultant, points out there is ?a lot of fat? to cut in public expenditure. Under Mr Mej?a, the government payroll increased by 30% to culminate at about 400,000 employees?twice as many as in the assembly sector. Furthermore, there are signs that the economy is recovering. Although the export sector remains flat, the two other drivers of the economy?tourism and remittances from America?are doing better than ever.
Mr Fern?ndez's prospects, however, depend heavily on the opposition. Mr Mej?a's Dominican Revolutionary Party still has an outright majority in the Senate and the largest block of votes in the lower Chamber of Deputies. Some legislators, disenchanted with Mr Mej?a, will certainly want to work for tax reform with the new president. But others will be looking for him to fail.
The new president will have to push for reform during his first 100 days, while he is still riding high in the opinion polls. But if he stumbles in the next few months, it may be a very long slog ahead for both him and his country.
Copyright ? 2004 The Economist Newspaper and The Economist Group. All rights reserved.
