Economic success pays off as investors move in
RECENTLY UPGRADED BY THE LEADING CREDIT AGENCIES, THE DOMINICAN ECONOMY GOES FROM STRENGTH TO STRENGTH, DRIVEN BY A POWERFUL PRIVATE SECTOR AND SUBSTANTIAL U.S. INVESTMENT

Years of macroeconomic stability and economic reforms have vaulted the Dominican Republic to the top of the performance list among Latin American economies. The Dominican Republic also has one of the most privatized economies in the region, with the public sector value making up only 6.7% of Gross Domestic Product.
Private domestic investment nearly doubled in the period between 1996 and 2000 to represent 82% of gross domestic investment. Clearly, the private sector was the catalyst for the country’s economic growth of an average 7.7% during that period.
And while most of the world bordered on negative growth in 2001, the Dominican Republic rebounded from a sluggish start caused by external factors to end up with an estimated 3% growth rate for the year.

“The Dominican economy has solid macroeconomic fundamentals. We are sure that we have taken the right road. We just have to keep promoting coherent microeconomic policies and making the reforms that are needed to reach higher levels of growth and improve the Dominican people’s standard of living,” explains Francisco Guerrero Prats, governor of the Central Bank of the Dominican Republic.
Mr. Guerrero is quick to point out that one of the best testimonials to the stability of the Dominican economy was the recent positive evaluation from the world’s most respected credit rating agencies. “Moody’s increased our rating two levels, from B1 to Ba2, and Standard & Poor’s awarded us a BB-, up from the previous rating of B+,” Mr. Guerrero notes.

Still, many Dominican economists remain ever so slightly offended by what they describe as an oversight by the rating agencies, which gave the Dominican Republic a lower rating than some countries whose economies are not performing as well.
And in fairness, they seem to have a point if one is to make an objective analysis of the Dominican Republic’s indicators.
The Dominican Republic has a better showing than other countries which obtained better rating in all the leading macroeconomic indicators: GDP growth, rate of inflation and unemployment, public sector deficit, quasi-fiscal central bank losses, implicit pension debt, non-performing loans in the banking system, domestic savings and investment, current account deficit, exports diversification in both goods and services, and public sector debt–both domestic and external–as a percentage of GDP.

The Dominican Republic also has a better showing when it comes to external debt as a percentage of exports of goods and services, debt service ratio, foreign exchange reserves net of sovereign bonds outstanding and remittances from Dominicans living abroad, including the one million Dominicans who call New York City home.
“These remittances are the Dominican Republic’s second source of earnings, providing some $1.7 billion during the year 2000, Mr. Guerrero notes. “And it is estimated that 80% of that amount originates from the Dominicans who live in the United States, and especially those in the city of New York.”

The rating, however, should not prove to be an obstacle to the Dominican Republic’s ability to gain more public and private access to international capital markets. Just nine days after the September 11 terrorist attacks in the United States and in the midst of a highly nervous market, the Dominican Republic launched a $500 million sovereign bond issue, which attracted orders for some $750 million despite the turmoil. As it turned out, a five-year government bond at 9.5% was too attractive an instrument to pass up.