According to the 16 January Country Outlook report prepared by The Economist Intelligence Unit, there could be relief ahead with a change of government. The Economist says that former President Leonel Fernandez is the favorite to win the 16 May presidential election. On this assumption, the publication states: “In 2005 we forecast a return to positive growth on the assumption that the incoming government takes the necessary measures, particularly in respect of management of the public finances, to restore confidence, creating the conditions for a reduction in interest rates.” The Economist Intelligence Unit forecasts 2004 will continue to be a difficult year for Dominicans and expects the Dominican economy to contract again in 2004 by 1% as inflation erodes real purchasing power. This is further down from the expected 2003 year-end 1.2% contraction. The Economist is bullish nevertheless on the prospects of positive effects on the Dominican economy with continued world recovery. This spells increased free zone manufacturing, tourism and remittance hard currency receipts, which it says could offset what is viewed as the depressed state of domestic demand. Domestic demand has contracted due to increased consumer item prices as a consequence of the steep devaluation of the peso and increased taxes on imports. The research unit expects credit to remain expensive and scarce, while private investment will be crowded out by the government’s large borrowing requirement. On the positive side, The Economist highlights the good relations President Mejia has developed with the US administration, which have led to the fast-tracking of a bilateral Free Trade Agreement with the US, similar to that underway with Central American countries.
Negotiations are due to conclude in March, in time for the agreement to be docked to the Central American Free Trade Agreement (CAFTA) and to be passed by the US Congress prior to the opening of the US presidential election campaign.