The Dominican Republic

Latin America's latest economic miracle

Dollars and Sense magazine, March / April 2001

While I was living in the rural town of San Jose de Ocoa, Dominican Republic, in 1980, water outages often made me complete my morning shower by scooping water from nearby buckets filled earlier to cover household needs. Water and electricity outages, in fact, were so frequent that toddlers quickly learned to se fue la luz ("the lights went out"), imitating a cry heard frequently throughout the barrio.

When I returned to the Dominican Republic in August 2000, I never ventured beyond the capital city of Santo Domingo. The apparent transformation of urban life over the previous 20 years, however, shocked me. A cloak of consumerism - SUVs, cell phones, beepers, internet billboards, designer bottled water, traffic jams, Burger King- covered the old colonial city. The Caribbean's largest shopping mall, new apartments, office complexes, and manufacturing plants transformed the cityscape. A future high-technology "Cyberpark of Santo Domingo" had already attracted a $ 15 million initial investment from Taiwan businesses.

For the last three years, the Dominican Republic has boasted the highest rate of economic growth in Latin America, around 7-8% per year. Headlines proclaim a Dominican "economic miracle." The impressive growth figures, however, mask persistent inequality and poverty. In 1998, more than a fifth of Dominicans lived below the official poverty line of only $2 per day, and the level of rural poverty was more than double the urban rate. Poverty remains a severe problem, especially in places untouched by Santo Domingo's booming economy - in places like San Jose de Ocoa.

THE ECONOMY

In 1950, three quarters of 0 Dominican workers labored in agriculture, and four fifths of the country's export income came from sugar. By the 1980s, falling world sugar prices, reduced U.S. consumption of cane sugar, and reduced import quotas imposed by the U.S. government dragged down sugar earnings. The sugar crisis, along with the debt crisis that swept Latin America during the 1980s, hit the Dominican Republic hard. By mid-decade it was one of the poorest countries in the Americas. The International Monetary Fund (IMF) imposed "structural adjustment" austerity programs in 1984 and 1991 - the first administered by the Dominican Revolutionary Party (PRD) government of Salvador Jorge Blanco; the second, by the Social Christian Reform Party (PRSC) administration of Joaquin Balaguer. Each time, massive price increases for basic goods provoked widespread strikes and street protests.

As the old sugar economy died in the 1980s, both the Jorge Blanco and Balaguer governments embraced a new economic strategy based on tourism and "free-trade zone" assembly plants. The Reagan administration's 1983 Caribbean Basin Initiative, which gave imports from Caribbean countries preferred access to the U.S. market, fueled the growth of free-trade zones - much as the North American Free Trade Agreement later fueled the maquiladora economy of northern Mexico. The Dominican government used tax breaks and other subsidies to attract U.S. firms, which own almost half the factories in the free-trade zones. By 1999, four sectors of the economy, each with an annual growth rate exceeding 10%, were powering the Dominican "miracle": telecommunications, construction, tourism, and free-trade zone manufacturing. Tourism alone generated more than $4 billion in foreign exchange in 1999. Meanwhile, the 43 free-trade zones - where more than 400 factories employed 200,000 people - accounted for almost $1 billion in exports in 1998.

POVERTY

In 1998, the vast majority of Dominicans living below the official poverty line lacked indoor sanitation or indoor running water. Over half did not have running water at all, and more than a fifth lacked electricity. The vast majority had not completed primary school. "Perhaps the most vulnerable people in our country," says a Dominican priest living in a low-income area of Santo Domingo, "are either Haitian or Dominican-born with Haitian parents, and therefore undocumented. "With the government now privatizing the state-run sugar company, the priest says, poor people in the sugar-producing areas, many of whom are Haitian, are "poorer than ever."

People with jobs in the free-trade zones average about $80 to $120 per month, enough to lift them above the poverty line. In the booming cities, more people are rising into the middle class, though some only by working two and three jobs. Meanwhile, the upper middle class can afford large houses, luxury cars, and ski vacations. The poor barrios of Santo Domingo, however, continue to grow- in part due to migration from impoverished rural areas. "The poorest area of my parish," says the priest from Santo Domingo, "has more people than ever. In some places you see improvements to the houses, but when you go into the alleys it's all dirt and waste water."

According to the United Nations Development Programme (UNDP), the 1990s boom "does not appear to have dramatically reduced poverty." When President Leonel Fernandez of the Dominican Liberation Party (PLD) took office in 1996, he declared poverty reduction one of his main goals. His government implemented a "National Social Development Plan" (1996) and "Decent Community Program" (1998) to improve essential social services like health and education through decentralization and greater involvement of local communities. But the country's low level of social spending largely thwarted these efforts. Even in the midst of its "anti-poverty" program, the Dominican government spent less than 3% of the country's Gross Domestic Product (GDP) on education and less than 2% on health. In all, social spending only accounted for about 7% of the country's GDP - half the Latin American average.

THE FUTURE

The unequal effects of the boom vaulted social democrat Hipolito Mejia of the Dominican Revolutionary Party (PRD) to the presidency in 2000. Popular resentment of neoliberal policies - including the privatization of the national power company, which caused widespread power outages - helped Mejia win almost 50% of the vote against two other candidates, including former president Balaguer. Mejia's campaign slogan was "People First." As a candidate, he reached out to farmers hurt by increased food imports and the sugar privatization. He pledged to aid the poor by creating low-income housing and jobs. He also promised to end the corruption and insider politics that have characterized much of Dominican history: "I am going to govern in a glass house," Mejia declared.

Mejia's 2001 budget did increase the overall level of social spending to about o% of GDP, one percentage point higher than in 2000 but still far below the Latin American average. While government spending on education will increase by nearly 20% in 2001, it will fall short of the level Mejia promised before the election. In the area of public health, government spending will actually decrease. These disappointments, along with the president's new alliance with former adversary Joaquin Balaguer, have swelled the ranks of disillusioned Mejia voters, who call themselves arreperztidos (remorseful ones).

The window of opportunity may soon close on Mejia's promised anti-poverty program. Because the Dominican economy is so closely tied to the U.S. economy, fading U.S. growth may dampen the Dominican "miracle." The substitution of corn syrup and artificial sweeteners for cane sugar in U.S. soft drinks destroyed the Dominican "miracle" of the 1960s and 1970s. A U.S. recession could just as easily end the current boom. Unless the Dominican government enacts effective anti-poverty programs and reverses policies that foster inequality, any downturn will fall most heavily on the country's two million poor people, those who did not partake of the "miracle" while it lasted. c

Resources: Juan Bolivar Diaz, "Mejia avanza hacia donde quiere," Rumbo 362, January 8, 2001; Central Bank of the Dominican Republic <www.bancentral.com.do>; Dominican Republic Country Assessment, UNDP Poverty Report 2000; Michael J Kryzanek and Howard J Wiarda, The Politics of External Influence in the Dominican Republic, Praeger, 1988; David Howard, Dominican Republic in Focus A Guide to the People, Politics, and Culture, Interlink Books, 1999; Howard Wiarda, "Leading the World from the Caribbean: The Dominican Republic," Hemisphere 2000, Series VII, Issue 4, July 1999; William Blum, "A Brief History of United States Interventions, 1945 to the Present," <www.zmag.org>; United Nations Development Programme, Human Development Report 2000; World Bank, World Development Indicators 2000.

Marie Michael is the business manager of Dollars & Sense and an Adrian Dominican Sister. She lived in the Dominican Republic in 1980.

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