Dominican Republic - Economy

Traditionally, the economy of the Dominican Republic has been based primarily on agriculture, with sugar, coffee and tobacco as the main export crops, but over the last few years the services sector has become the largest employer (about 60% of the labor force), led by tourism. In 2000, services accounted for over half of GDP (54.8%) and agriculture accounted for only 11.1%, down from about 20% in the mid-1990s. Tourist receipts reached $2.9 in 2000, almost tripling since the early 1990s, although growth was greatly slowed by the double impact of the global economic slowdown in 2001 and the 11 September 2001 terrorist attacks in the United States. The Dominican Republic is among the top ten developing countries in terms of the amount of remittances received from abroad. In 2001 these totaled about $2 billion, double the rate in the mid-1990s. The economy's other major engine of growth has been its Free Trade Zones. In 2000, net exports from the Free Trade Zones were $1.7 billion, up from $1.2 billion in 1997, whereas traditional exports had fallen from to $.97 billion from $1 billion. Both sectors decline in 2002, but Free Zones exports were estimated at $1.86 billion for 2002, while traditional exports fell to $.87 billion. The government has encouraged investment in industry and tourism, seeking to diversify the economy and reduce the nation's dependence on sugar production.

Between 1968 and 1974, the average annual growth of GDP was 10.5%. The improved political climate during that period stimulated public and private investment, both domestic and foreign, and the development of tourism. A sugar boom also contributed to rapid growth. During the second half of the 1970s, the growth rate slowed, in part because of rising oil prices and a weakening of the sugar market; damage from two 1979 hurricanes cost an estimated $1 billion.

The GDP declined by 2.2% in 1985, reflecting low world prices for the country's exports, declining US sugar quotas, and IMF imposed austerity. Unemployment soared to 26%, and inflation reached 37.5% the same year. The economy recovered somewhat in 1986 and 1987, due to the government's capital spending program and an increase in foreign investment.

Overall economic performance was positive during the 1990s. Although GDP declined in both 1990 and 1991; in 1992 real GDP increased by 7%. The high inflation prevailing in the late 1980s and early 1990s was finally tamed in 1993, as a result of an austerity program that brought the annual inflation rate from 53.9% in 1992 to only 4.6% in 1993. However, very tight monetary and fiscal policies caused the economy to decline by1.7% in 1994. Boosted by the continuous expansion of tourism, mining, and the export processing zones, the annual average growth rate 1995 to 2001was 7.7%, despite Hurrican Georges in September 1998, which left about 300 dead, hundreds of thousands homeless, and did an estimated $1.3 billion worth of damage (8% of GDP). The Dominican Republic's growth rate in 1999 of 8.3% was the highest in the world. The rate of inflation fell from 14.3% in 1994 to 6% in 1999, but in 2000 had increased to 9%. Fiscal measures were introduced in 2001 to reduce the inflation rate in the booming economy, but this coincided with the decline in the external economy, and also became a factor in reducing the country's GDP growth rated to2.7% in 2001, down from 7.6% in 2000 (the highest in Latin America). End of the period in 2001 was 4.4%. Projections for 2002 were for 3.7% growth and 6% inflation.

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