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U.S. DEPARTMENT OF STATE
DOMINICAN REPUBLIC: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS





                        DOMINICAN REPUBLIC

                     Key Economic Indicators
        (Millions of U.S. dollars unless otherwise noted)


                                      1992      1993     1994 1/

Income, Production and Employment:

Real GDP (1970 prices)             4,104.9   4,228.7  4,333.75
Real GDP Growth (pct.)                 7.8       3.0       2.5
GDP (current prices)                 7,828     8,689     9,172
By Sector:
  Agriculture                        1,174     1,304     1,376
  Energy/Water                         157       174       183
  Manufacturing                      1,252     1,390     1,467
  Construction                         548       608       642
  New Housing Investment               548       608       642
  Financial Services                   470       521       550
  Other Services                       783       869       917
  Government/Health/Education          783       869       917
  Others                             2,113     2,346     2,476
  Net Exports of Goods & Services   -824.0    -749.5       N/A
Real Per Capita GDP
  (1985 prices in DR pesos) 2/       2,202     2,209     2,211
Labor Force (000s) 3/                3,240     3,370       N/A
Unemployment Rate (pct.) 4/             30        30        30

Money and Prices:  (annual percentage growth)

Money Supply (M2)                       32        28         8
Base Interest Rate 5/                   30        29        27
Personal Saving Rate                   N/A       N/A       N/A
Retail Inflation                         7         8        12
Wholesale Inflation                    N/A       N/A       N/A
Consumer Price Index 6/                779       800       896
Exchange Rate (DR peso/U.S dollar)
  Official                           12.75     12.75     12.87
  Parallel                           12.74     12.60     14.00

Balance of Payments and Trade:

National Exports (FOB) 7/            561.9     530.4     530.9
  Trade Zone Exports (value added)   287.4     368.5       N/A
  Exports to U.S. 8/               2,095.0   2,349.5   2,584.5
National Imports (CIF) 7/          2,178.1   2,118.4   2,224.3
Imports from U.S. 8/               2,098.1   2,671.5   2,938.7
Aid from U.S. 9/                      22.5      24.6       N/A
Aid from Other Countries               N/A       N/A       N/A
External Public Debt               4,582.3   4,685.4   3,900.0
Debt Service Payments (paid)         480.9       N/A       N/A
Gold and FOREX Reserves 10/          580.8     714.2     250.0
Trade Balance (National) 7/       -1,616.2  -1,588.0  -1,693.4
  Trade Balance with U.S. 8/          -3.1    -322.0    -354.2


N/A--Not available.

1/ U.S. Embassy projections for 1994 calendar year.
2/ Source:  The Dominican National Statistic Office is the
source of population figures used to calculate per capita GDP.
3/ Source:  Dominican National Planning Office.
4/ Source:  U.S. Embassy Economic Section estimates.
5/ The 1994 figure is as of July 1994. Short term (90 day)
credit costs (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/ Embassy estimate for December 1994.

Source:  Economic Studies Department, Central Bank of
the Dominican Republic, unless otherwise indicated.



1.  General Policy Framework

    During 1994, the Dominican Republic began to show signs of
macroeconomic instability.  While inflation had stayed in the
single digit range during 1991-1993, by the end of 1994 the
consumer price index is expected to register a jump of some 12
percent (over December 1993). Similarly, exchange rate
stability began to deteriorate; during early October 1994 the
buy rate for U.S. Dollars in Santo Domingo's informal foreign
exchange market reached 14.70 pesos per dollar - a 15 percent
decline from the peso's October 1993 value. Because of the
Dominican Republic's very high propensity to import, changes in
the exchange rate inevitably have a significant impact on
consumer prices.
 
    The reasons for this deviation from macroeconomic stability
are clear: national elections were held on May 16, 1994 and
government spending increased during the period prior to the
elections.  Much of the increased spending was - in essence -
financed via money creation.  By July 1994, cash in the hands
of the public (m0) had increased by 24 percent over its July
1993 level. This increase in the money supply caused a big
increase in aggregate demand for goods and services, putting
pressure on both the exchange rate and the consumer price index.

    Significant reductions in the Dominican Central Bank's
dollar reserves left the government with a greatly reduced
capacity to intervene in the foreign exchange market: beginning
the year with dollar reserves of some 736 million dollars by
late August reserves were down to approximately 150 million
dollars. The reserves were diminished as a result of Central
Bank efforts to bolster the peso in the face of
election-related nervousness. The Central Bank also used a
significant portion of its reserves to settle the Dominican
government's long-standing commercial debt problem (see below).

    Starting in early September 1994, the Dominican government
initiated efforts to recover macroeconomic stability. A
seasoned finance professional was given the position of Central
Bank Governor and steps were immediately announced to reign in
the monetary expansion mentioned above. President Balaguer
pledged his support for the Central Bank's stabilization
program. As of late October 1994, it appears that the
government was having some success in these efforts.


2.  Exchange Rate Policy

    In effect there are three different sets of exchange rates
in the Dominican Republic: the official Central Bank rates, the
rates used by the commercial banking system and the rates used
by the semi-legal "informal" foreign exchange market.  Some
sectors of the Dominican economy are still required by law to
buy and sell foreign exchange at the Central Bank, but most
businesses and individuals are free to carry out foreign
exchange transactions through the commercial bank system. In
practice the Central Bank works to prevent the commercial bank
rates from deviating too widely from the official rates, but
when dollars are in short supply the informal market exchange
rate will begin to rise and dominicans seeking to buy or sell
dollars will make increasing use of this market.

    In its attempts to influence the exchange rate, the Central
Bank buys or sells dollars and attempts to influence overall
demand for dollars by manipulating the reserve requirements of
the commercial banks. To a limited extent the Central Bank also
eng short-term notes).

    While the peso price of U.S. Dollars has increased, as of
October 1994 there was no indication that business activity was
being seriously affected by any shortage of foreign exchange.
Businesses here do, however, worry that the government might
respond with exchange rate controls should the value of the
peso continue to decline.


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 reduced and simplified the tariff schedule
to six categories with seven tariff rates ranging from 3 to 35
percent. It also replaced some quantitative import restrictions
with tariffs and transformed all tariffs to ad valorem rates.
 
    While it marked an improvement over the previous tariff
regime, the 1990 decree still left the Dominican Republic with
trade barriers significantly higher than 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.)

    The Dominican government has also 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.

    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."  Unfortunately 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 health 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
reform. A draft foreign investment law is currently in the
hands of the Congress, but progress in this area has been very
slow.


4.  Debt Management Policies

    The total external debt of the Dominican government is now
approximately 3.9 billion dollars. A significant portion of the
official debt was rescheduled under the terms of a Paris Club
negotiation concluded in November, 1991.  In August 1994 the
Dominican government successfully concluded debt settlement
negotiations with its commercial bank creditors. The deal
involved a combination of buy-back schemes and U.S. Treasury
backed rescheduling.

    The Dominican Republic's debt burden is fairly typical for
a lower middle income country.  Total external debt as a
percentage of GNP is approximately 48 percent.


5.  Significant Barriers to U.S. Exports

    Trade Barriers:  Tariffs on most products fall within a 5
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. Due to the way in which this selective consumption tax
was assessed, U.S. made automobiles were prohibitively 
expensive in the Dominican market. In response to inquiries
from the U.S. Embassy, the Dominican government corrected this
situation and the number of U.S. made automobiles increased
significantly.

    The Dominican Republic continues to require a consular
invoice and "legalization" of documents, which must be
performed by a Dominican consulate in the United States. 
Moreover, importers are frequently queried to obtain licenses
from the Dominican customs service.

    There are food and drug testing and certification
requirements, but these are not burdensome.

    Customs Procedures:  Many businesspersons have complained
that bringing goods through Dominican customs is a slow and
arduous process, but there are indications that this situation
improved during 1994.  Customs department interpretation of
exonerated materials being brought into the country still
provokes many complaints and businessmen here must spend
considerable time and money to get items through customs.

    Arbitrary customs clearance procedures sometimes cause
problems for businessmen. 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. Provisions
of the U.S. Foreign Corrupt Practices Act often put U.S.
bidders on government contracts at a serious disadvantage.
 
    Prohibitions on Land Ownership:  For foreigners, ownership
of more than approximately one-half acre (2,000 square meters)
needs presidential approval.

    Investment Barriers:  As indicated above, legislation
designed to improve the investment climate is being discussed,
but as of October 1994, no significant changes in the
investment climate had been put into effect.

    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 profits.

    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
enterprise.

    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
investment directorate.

    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
disapprove them.

    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 (and the foreign investment law
mentioned above) could bring changes to this local ownership
requirement.

    Foreign companies cannot obtain internal 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.  Businesses operating in the DR cannot
depend on the power utility to be a reliable source of
electricity. While the government has been exploring the
privatization of portions of the electric power system,  little
progress has been made.

    Foreign employees may not exceed 20 percent of a firm's
work force.  This is not applicable when foreign employees only
perform managerial or administrative functions.

    Dominican expropriation standards (e.g., in the "public
interest") do not appear to be consistent with international
law standards; several investors have outstanding disputes
concerning expropriated property.

    The Dominican Republic has not recognized the general right
of investors to binding international arbitration.

    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
transparent.

    Investors operating in the Dominican Republic's free trade
zones experience far fewer problems than do investors working
outside the zones. For example, materials coming into or being
shipped out of the zones are reported to move very quickly,
without the kinds of bureaucratic difficulties mentioned above
and the onerous restrictions on profit remittances do not apply
to free trade zone businesses.


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 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.


7.  Protection of U.S. Intellectual Property

     In general, copyright laws are adequate, but enforcement
is weak, resulting in widespread piracy.  Although the
Dominican Republic is a signatory to the Paris Convention and
the Universal Copyright Convention, and in 1991 became a member
of the World Intellectual Property Organization, the lack of a
strong regulatory environment results in inadequate protection
of intellectual property rights.  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.
In response to this complaint, the Dominican government took 
effective action against cable television pirates and most of
the television piracy was halted.

    Patents (product and process):  In a local pharmaceutical
market of approximately 110 million dollars 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.  The U.S. Motion Picture Exporters' Association
had estimated that losses to its members due to theft of
satellite-carried programming were more than one million
dollars per year.  Losses due to other counterfeiting cost U.S.
companies millions more.


8.  Worker Rights

    a.  The 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.  The 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.  According to law workers
cannot be dismissed because of union activities or membership. 
There has been a history of labor conflict in the free trade
zones, with companies firing workers for engaging in union
organizing activities. The 1992 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 work force.  The 1990 firings of unionized workers
by the Dominican Electric Corporation led to management/labor
disputes which have yet to be fully resolved.  The free trade
zones have also been the scene of some management/labor
 disputes (see Section 8.F.). 

    c.  Prohibition of Forced or Compulsory Labor

    Forced or compulsory labor is prohibited by law. 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 note that such practice is no longer a serious
problem.

    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 workweek
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 under funded.

    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
has been a matter of controversy, but during 1994 some progress
was made.  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 worker
rights, conditions in sectors with U.S. investment do not
differ significantly from conditions in sectors lacking U.S.
investment.




  Extent of U.S. Investment in Selected Industries.--U.S. Direct
Investment Position Abroad on an Historical Cost Basis--1993

                    (Millions of U.S. dollars)
                                                                
              Category                          Amount          

Petroleum                                             (1)
Total Manufacturing                                   237
  Food & Kindred Products                     4
Chemicals and Allied Products             (1)
  Metals, Primary & Fabricated              (1)
  Machinery, except Electrical                0
  Electric & Electronic Equipment             5
  Transportation Equipment                    0
  Other Manufacturing                       210
Wholesale Trade                                         5
Banking                                               (1)
Finance/Insurance/Real Estate                           3
Services                                              (1)
Other Industries                                      (1)
TOTAL ALL INDUSTRIES                                1,020      

(1) Suppressed to avoid disclosing data of individual companies

Source: U.S. Department of Commerce, Bureau of Economic
Analysis
(###)


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