Caribbean Basin Initiative (CBI) and Generalized Systems of Preferences—government programs that allow the import of raw materials, equipment, and goods for reexport duty-free—benefit the economy. Tax exempt status for up to 20 years is also available. Duty-free access to the European common market was granted by joining the Lome Convention in 1989, which also provides inexpensive financing for economic development projects. The addition of free trade zones greatly improved the level of industry in the country, but the NAFTA agreement transplanted some manufacturers to Mexico.
The 1998 hurricane caused at least $1.2 billion in damage; analysts estimated that the Dominican Republic's emergency aid would amount to 25% of its annual budget. The United States offered $47 million, and the European Union (EU) offered $50 million. Foreign aid may have successfully saved the small economy, and even improved it in 1999. Still, the state has a number of parastatals to privatize, and the fairly strict tariff regime has driven most investment capital into the free trade zones.
Rising foreign direct investment, particularly in the electricity, telecommunications, tourism, and free-trade zone sectors drove the average annual gross domestic product (GDP) growth rate from 2.25% a year in the early 1990s, to 7.75% a year in the second half of the decade. Economic growth fell to 2.7% in 2001, however, in part due to the global economic downturn, and to the 11 September 2001 terrorist attacks on the United States. The unemployment rate rose that year, yet the inflation rate was reduced by half. The government maintained a strict fiscal policy, and tightened monetary policy in early 2002. There was a need for further social spending and investments in infrastructure, however.