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TITLE: DOMINICAN REPUBLIC ECONOMIC POLICY AND
DATE: FEBRUARY 1994
AUTHOR: U.S. DEPARTMENT OF STATE
Key Economic Indicators
(Millions of U.S. dollars unless otherwise noted)
1991 1992 1993 /1
Real GDP (1985 prices),
(millions of D.R. pesos) 15,319 16,514 17,009
Real GDP Growth (pct.) -0.6 7.8 3.0
GDP (current prices in U.S.$) 7,175 7,828 8,689
Agriculture 1,098 1,174 1,304
Energy and Water 122 157 174
Manufacturing 1,148 1,252 1,390
Construction 517 548 608
New Housing Investment 474 548 608
Financial Services 466 470 521
Other Services 703 783 869
and Education 739 783 869
Others 1,908 2,113 2,346
Net Exports of
Goods and Services -444.0 -824.0 n/a
Real Per Capita GDP
(1985 Prices in D.R. pesos) /2 2,099 2,202 2,209
Labor Force (000's) /3 3,115 3,240 3,370
Unemployment Rate (pct.) /4 30 30 30
Money and Prices
(annual percent growth)
Money Supply (M2) 41 32 28
Base Interest Rate /5 34 30 29
Retail Inflation 4 7 8
Consumer Price Index /6 1,895.21 1,982.28 2,140.86
Exchange Rate (U.S.$/D.R. peso)
Official 12.74 12.75 12.75
Parallel 12.97 12.74 12.60
Balance of Payments and Trade
National Exports (FOB) /7 658.3 561.9 516.9
Trade Zone Exports (value-added) 250.0 287.4 n/a
Exports to U.S. /8 2,095.0 2,452.5 n/a
National Imports (CIF) /7 1,728.8 2,178.1 2,200.0
Imports from U.S. /8 1,742.7 2,098.1 n/a
Aid from U.S. /9 21.1 22.5 24.6
Aid from Other Countries /10 30.5 n/a n/a
External Public Debt 4,481.4 4,582.3 4,685.4
Debt Service Payments (Paid) 643.9 480.9 n/a
Gold and Forex Reserves /11 500.1 580.8 714.2
Trade Balance (National) /7 -1,070.5 -1,616.2 -1,683.0
Balance with U.S. /8 352.3 354.4 n/a
SOURCE: Economic Studies Department, Central Bank of the
Dominican Republic, unless otherwise indicated.
n/a = Not available.
1/ U.S. Embassy projections for 1993 Calendar Year.
2/ Source: The Dominican National Statistic Office is the
source of population figures used to calculate per capita
3/ Source: Dominican National Planning Office.
4/ Source: U.S. Embassy Economic Section estimates.
5/ The 1993 figure is as of August, 1993. Short term (90
day credit cost (Prime Rate).
6/ May 1976-April 1977 equals 100.
7/ "National Exports" means all exports other than from Free
Trade Zones. "National Imports" means all imports other
than those bound for Free Trade Zones.
8/ Source: U.S. Department of Commerce. This data includes
all items exported to or imported from the Dominican
Republic by the United States, including Dominican Free
Trade Zone activity.
9/ Calculation based on U.S. Government Fiscal Year.
10/ Source: United Nations Development Program.
11/ 1993 Figure as of August.
1. General Policy Framework
During the late 1980's, the Dominican Republic suffered a
deep economic crisis. This crisis came largely as the result
of unsound government fiscal and monetary policies and was
exacerbated by declining world market prices for the country's
principal exports. The year 1990 marked both the low point and
the turning point. In that year, inflation reached 100
percent, GDP dropped approximately five percent and the
currency suffered major devaluations.
Starting in 1990, the government began to put its house in
order. The budget deficit was slashed and the exchange rate
and interest rates were allowed to float. Inflation was
quickly brought under control, dropping to four percent in
1991. Economic growth resumed in the second half of 1991. The
Dominican government claims GDP grew by 7.7 percent in 1992 and
forecasts 5 percent growth for 1993. Other observers forecast
3 percent GDP growth for 1993.
In the area of fiscal policy, the government began to
eliminate its large deficits in 1990. Tax collection
mechanisms were improved and spending on inefficient parastatal
enterprises was greatly reduced. The government has in recent
years carried out expensive, large-scale public works
projects. The majority of government revenue in 1992 came from
import duties (36 percent of the total), a value-added tax (14
percent of the total), income taxes (16 percent of the total)
and a special petroleum products surcharge (12 percent of the
total). The remaining 22 percent of government income came
from several additional taxes (including asset and consumption
taxes) and from foreign loans and grants. (Source: Monthly
Bulletin of the Central Bank of the Dominican Republic, October
1993). During 1993, the government continued to depend heavily
on taxes derived from international trade.
Monetary policy has long been an area of great difficulty
in the Dominican Republic. During the late 1980's, the
government financed its fiscal deficits by expanding the money
supply. This led to the inflation described above. The
government has largely eliminated this particular kind of
"inflation finance," but other factors have caused the money
supply to grow at a significant and potentially worrisome
rate. During 1992, the money supply (M2) grew 32 percent due
largely to Central Bank purchases of foreign exchange (dollars).
2. Exchange Rate Policy
In response to the crisis of the late 1980's, the Dominican
Republic moved to a market-determined exchange rate system for
most transactions. Importers are now able to obtain hard
currency directly from commercial banks instead of from the
Central Bank. However, the Central Bank charges a two percent
commission on all foreign exchange transactions conducted by
commercial banks. The Central Bank has kept its official "buy
rate" for the dollar fixed at 12.5 pesos since mid 1991, and it
intervenes in the foreign exchange market to prevent market
rates from moving far from this official rate. During 1992 and
1993, business activity in the Dominican Republic was not
impeded by problems in the foreign exchange market.
3. Structural Policies
Starting in 1990, the government began to eliminate many of
the distorting price control and subsidy programs that had
contributed to the crisis of the late 1980's. Today, the vast
majority of prices are determined by market forces.
Of particular interest to U.S. exporters are reforms in the
customs and tariffs area. In September, 1990 the Dominican
government enacted a major tariff reform by presidential
decree. The decree resulted in a simplified tariff schedule
with six categories and seven tariff rates ranging from 5 to 35
percent. It also replaced quantitative import restrictions
with tariffs, transformed all tariffs to ad valorem rates and
imposed a temporary surcharge that was to be phased out over
three years. This surcharge was eliminated in September 1993.
While it marked an improvement over the previous tariff
regime, the 1990 decree still left the Dominican Republic with
trade barriers significantly higher than those of many similar
countries in the region. In August 1993, the Dominican
President signed into law a bill that was essentially a
codification of the 1990 decree (with some modifications
designed to increase rates of effective protection for
Dominican firms). This new tariff law was bitterly opposed by
free trade advocates - it leaves the Dominican Republic with a
maximum tariff of 35 percent while many other countries in the
region are moving toward much lower maximum tariffs. (There
are additional taxes on imports - see below.)
Difficult customs procedures continue to be a major
complaint of businessmen operating in the Dominican Republic.
The Dominican government has implemented changes in its tax
system aimed at increasing revenues. The concept of taxable
income has been enlarged, marginal tax rates on individuals and
companies were reduced and capital gains are no longer
considered exempted income.
In May 1992, a new labor code was promulgated. Provisions
of this new code increase a variety of employee benefits and
may result in increased labor costs. In spite of this reform,
considerable problems remain in the area of labor relations
The banking and finance system is also in need of reform.
The goal is a healthier, more competitive and transparent
finance system with closer compliance to clearly understood
"rules of the game." A new Financial Monetary Code that was
expected to be enacted in late 1992 has not been put into
effect. Some bank reforms are being carried out by decree, but
bank supervision remains very weak and there is uneasiness
about the heath of the banking system.
Government policy prohibits new foreign investment in a
number of areas including public utilities, communications and
media, national defense production, forest exploitation and
domestic air, surface and water transportation. It is widely
recognized that there is a pressing need for investment climate
4. Debt Management Policies
The total external debt of the Dominican government is
approximately $4.5 billion. Approximately $3.5 billion is
official debt and $1 billion is owed to commercial creditors.
A significant portion of the official debt was rescheduled
under the terms of a Paris Club negotiation concluded in
November 1991, but the Dominican government did not put into
effect bilateral agreements implementing this rescheduling
until November 9, 1993. Progress on the commercial debt has
also been very slow. In May 1993, the Dominican government
reached tentative agreement with its commercial bank creditors
on terms for a debt settlement, but as of October 1993, the
government and the banks had not reached an agreement.
The Dominican Republic's debt burden is fairly typical for
a lower-middle-income country. Total external debt was
equivalent to 63.3 percent of GNP in 1989.
5. Significant Barriers to U.S. Exports
Trade Barriers: Tariffs on most products fall within a 3
to 35 percent range. In addition, the Government of the
Dominican Republic imposes a 5 to 80 percent selective
consumption tax on "non-essential" imports such as home
appliances, alcohol, perfumes, jewelry, automobiles and auto
parts. In the case of automobiles, the tax is differentiated
by engine size. Because of the engine size differentiation,
U.S. automobiles frequently face prohibitive import duties and
market share has been sharply reduced.
The Dominican Republic continues to require consular
invoice and "legalization" of documents with attendant fees,
which must be performed by a Dominican consulate in the United
States. Moreover, importers are required to obtain licenses
from the Dominican Customs Service.
Customs Procedures: Many businessmen complain that
bringing goods through Dominican Customs is a slow and arduous
process. Customs' interpretation of exonerated materials being
brought into the country provokes many complaints. Certain
imported goods which are ostensibly exonerated from duties are
frequently delayed by Customs. This requires exporters to
spend more time and money to clear these items.
Arbitrary customs clearance procedures sometimes cause
firms to have their merchandise held up for as long as a year.
Valuations frequently are incorrect. The use of "negotiated
fee" practices to gain faster customs clearance continues to
put some U.S. firms at a competitive disadvantage in the
Dominican market. U.S. firms must comply with the provisions
of the U.S. Foreign Corrupt Practices Act.
Government Procurement Practices: The Government of the
Dominican Republic has a centralized government procurement
office, but the procurement activities of this office are
basically limited to expendable supply items for the
government's general office work. In practice, each public
sector entity has its own procurement office, both for
transactions in the domestic market and for imports. There is
no clear rule requiring open, competitive bidding in public
procurement. Provisions of the U.S. Foreign Corrupt Practices
Act often put U.S. bidders on government contracts at a serious
Prohibitions on Land Ownership: For foreigners, ownership
of more than approximately one-half acre (2,000 square meters)
needs Presidential approval.
Investment Barriers: Foreign investment must receive
approval from the Foreign Investment Directorate of the Central
Bank in order to qualify for repatriation of profits. The
granting of such approval sometimes is time-consuming and the
procedures are unclear, making approval sometimes difficult.
As per Law 861, Article 16, of July, 1978 companies registered
under the foreign investment law are limited in remitting
profits or dividends abroad to 25 percent of registered capital
per year. Unregistered investment has no right to transfer
Capital gains have the right to be remitted only up to two
percent annually and, cumulatively, to 20 percent of the
original investment. Invested (and registered) capital may be
remitted, but only upon the sale or liquidation of the
Royalties (payments made for technology transfers,
licensing contracts and for use of patents and trademarks) may
only be paid based on a percentage of sales. Further, each
such contract must be individually approved by the Foreign
Reinvestment of profits is highly restricted. The
enterprise must be in the agribusiness or tourism sectors, must
export at least 80 percent of its sales, and must remain at
least 70 percent domestically owned.
All contracts with foreigners for the use of trademarks, or
for the use of specialized technical knowledge, must be
submitted to the Foreign Investment Directorate for
registration. The Directorate is permitted to delay or even to
Financial institutions doing business in the Dominican
Republic must be at least 50 percent Dominican owned, as per
Law 861, Article 23 of July, 1978. Exceptions to this law are
Citibank and the Bank of Nova Scotia, which were grandfathered
in because they were here prior to passage of this law. A new
Finance and Monetary Code, presently under consideration, could
bring changes to this local ownership requirement.
Foreign companies cannot obtain local source credit for a
period greater than one year without prior approval from the
Central Bank, as per Law 861, Article 28 of July, 1978.
Sectors reserved by other provisions of Law 861 for
domestic investment are: public utilities, communications and
media, national defense production, forest exploitation, and
domestic air, surface and water transport. (Some foreign
businesses operate in these sectors because they have been
grandfathered in.) Foreign investors can participate in joint
ventures (defined as having 51 to 70 percent Dominican capital
and management control) in fishing, insurance, farming, animal
husbandry, and commercial and investment banking.
The electricity sector continues to be a weak link in the
Dominican economy. Recently, however, the Dominican government
agreed upon a reform and expansion strategy which is based on
private sector participation in both generation and
distribution of electricity. A draft electricity law is at the
Presidential office and is expected to reach Congress shortly.
To date however no new private electric plants have been
Foreign employees may not exceed 20 percent of a firm's
workforce. This is not applicable when foreign employees only
perform managerial or administrative functions.
Dominican expropriation standards continue to cause
difficulties; several investors have outstanding disputes
concerning expropriated property. Instead of resolution
through binding international arbitration, settlement of
investment disputes is limited to local courts, or in the case
of arbitration, to the Chamber of Commerce and Industry of
All mineral resources belong to the state, which controls
all rights to explore or exploit them. Although private
investment has been permitted in selected sites, the process of
choosing and contracting such areas has not been clear or
Various efforts to reform the current foreign investment
law have yielded no tangible results. There is a proposed
draft law, written in the Central Bank, which would go a long
way towards meeting the legal needs of foreign investors, but
its future enactment is far from certain.
Investors operating in the Dominican Republic's Free Trade
Zones experience far fewer problems than do investors working
outside the Zones.
6. Export Subsidies Policies
The Dominican Republic has two sets of legislation for
export promotion: The Free Trade Zone Law (Law No. 8-90,
passed in 1990) and the Export Incentive Law (Law No. 69,
passed in 1979). The Free Trade Zone Law provides 100 percent
exemption on all taxes, duties, and charges affecting the
productive and trade operations at Free Trade Zones. These
incentives are provided to specific beneficiaries for up to 20
years, depending on the location of the zone. This legislation
is managed jointly by the Foreign Trade Zone National Council
and by the Dominican Customs Service.
The Export Incentive Law provides for Tax and Duty Free
treatment of import of inputs from overseas that are to be
processed and re-exported as final products. This legislation
is managed by the Dominican Export Promotion Center and the
Dominican Customs Service. In practice, use of the Export
Incentive Law to import raw materials for process and re-export
is cumbersome and delays in clearing Customs can take anywhere
from 20-60 days. This Customs clearance process has made
completion of production contracts with specific deadlines very
difficult. As a result, non-free trade zone exporters rarely
take advantage of the Export Incentive Law. Most prefer to
import raw materials using the normal Customs procedures which,
although more costly, are more rapid and predictable.
There is no preferential financing for local exporters nor
is there a government fund for export promotion.
The government currently is negotiating with the private
sector on a proposed new export incentive law. Chances of
passage are uncertain.
7. Protection of U.S. Intellectual Property
The Dominican Republic is a signatory to the Paris
Convention, the Universal Copyright Convention, and, since
1991, a member of the World Intellectual Property
Organization. In 1992, the Dominican Republic was the subject
of a petition by the Motion Picture Export Association of
America (MPEAA) before the United States Trade Representative,
alleging piracy of satellite television signals and
unauthorized use of videos in Dominican theaters. Following
this, several Dominican cable operators signed quitclaim
agreements with U.S. telecommunications firms governing fees to
be charged for local transmissions, although violations by
other operators continue to be a problem. Enforcement of new
regulations protecting videos has proved less successful, and
to date there is no apparent trend towards general compliance.
Patents (product and process): In a local pharmaceutical
market of approximately $110 million a year, Dominican
manufacturers supply about 70 percent of the total. Of that,
about seven per cent is believed to be counterfeit.
Trademarks and Copyrights: Many apparel brands are
counterfeited and sold in the local market. In addition to the
MPEAA complaint, problems have arisen with illegally copied
videos, software and books.
Impact of IPR Policies on U.S. Trade: Non-protection of
Intellectual Property Rights is so widespread that it is
virtually impossible to quantify its impact on U.S.-Dominican
Republic trade. In its complaint, the MPEAA estimates that
losses to its members alone, due to theft of satellite-carried
programming, are more than $1 million per year. Losses due to
other counterfeiting cost U.S. companies millions more.
8. Worker Rights
a. Right of Association
The Constitution provides for the freedom to organize labor
unions and also for the rights of workers to strike and for the
private sector to lock out. All workers, except military and
police, are free to organize, and strikes are legal except in
sectors which are considered essential services. Organized
labor in the Dominican Republic represents about 10-15 percent
of the work force and is divided among three large
confederations, three minor confederations, and a number of
independent unions. Labor unions can and do freely affiliate
regionally and internationally.
b. Right to Organize and Bargain Collectively
Collective bargaining is permitted and can take place in
firms in which a union has gained the support of an absolute
majority of the workers of a firm. Since there has been a
history of labor conflict in the free trade zones, with
organized labor accusing companies of firing workers for
engaging in union organizing activities, the Labor Code
protects from layoffs up to 20 members of a union in formation
and between 5 to 10 members of a union executive council,
depending on the size of the workforce. The firings of workers
by the Dominican Electric Corporation led to management/labor
disputes which have yet to be resolved. The free trade zones
have also been the scene of some management/labor disputes (See
Section 8.F.). None of the workers in any of the country's 26
free trade zones are covered by a collective bargaining
In 1993 the AFL-CIO filed a petition to remove GSP benefits
from the Dominican Republic for failure to provide
internationally recognized worker rights. The petition was
accepted for review; a final decision is expected in mid-1994
at the end of the 1993/94 review cycle.
c. Prohibition of Forced or Compulsory Labor
Forced or compulsory labor is prohibited by law. However,
the Dominican government has been criticized for its treatment
of Haitian workers employed by the State Sugar Council (CEA).
Alleged abuses have included forced recruitment, compulsory
labor, and restrictions on freedom of movement. Instances of
forced labor and restrictions on movement occurred in only
isolated instances on CEA plantations in 1993. Forced labor
has not been a problem in other areas.
d. Minimum Age for Employment of Children
The Labor Code prohibits employment of youths under 14
years of age and places various restrictions on the employment
of youths under the age of 16. In practice, there are large
numbers of minors working illegally, primarily in the informal
sector. The high level of unemployment and the lack of a
social safety net create pressures on families to allow
children to generate supplemental income. Instances of child
labor in CEA sugar plantations have diminished greatly and most
observers concede that such practice is no longer a serious
e. Acceptable Conditions of Work
The Labor Code establishes a standard work period of eight
hours per day and 44 hours per week, with an uninterrupted rest
period of 36 hours each week. In practice, a typical work week
is Monday through Friday plus half day on Saturday, but longer
hours are not unusual, especially for agricultural and informal
sector workers. Workers are entitled to a 35 percent wage
differential when working between 44 and 68 hours per week and
a 100 percent differential for any hours above 68 per week.
The vast majority of workers receive only the minimum wage
(which varies by law in accordance with the type of activity
and the size of the company). Safety and health conditions at
places of work do not always meet legal standards. The
existing social security system does not apply to all workers
and is underfunded.
f. Rights in Sectors with U.S. Investments
U.S.-based multinationals active in the free trade zones
represent one of the principal sources of U.S. investment in
the Dominican Republic. The free trade zone sector's
compliance with the right to organize and bargain collectively
is a matter of legal dispute, as the Dominican Labor
Secretariat has filed charges against more than a dozen free
trade zone firms for allegedly violating worker rights
provisions of the new Labor Code. No free trade zone company
has concluded a collective bargaining agreement with a union.
Some companies in the free trade zones adhere to significantly
higher worker safety and health standards than do non-free
trade zone companies. In other categories of workers rights,
conditions in sectors with U.S. investment do not differ
significantly from conditions in sectors lacking U.S.
Extent of U.S. Investment in Selected Industries
U.S. Direct Investment Position Abroad
on an Historical Cost Basis - 1992
(millions of U.S. dollars)
Total Manufacturing 134
Food & Kindred Products 3
Chemicals and Allied Products D
Metals, Primary & Fabricated -3
Machinery, except Electrical 0
Electric & Electronic Equipment D
Transportation Equipment 0
Other Manufacturing 109
Wholesale Trade 7
Finance and Insurance D
Other Industries D
TOTAL ALL INDUSTRIES 744
(D) -Suppressed to avoid disclosing data of individual companies
Source: U.S. Department of Commerce, Bureau of Economic
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