Ambiguity of the Dominican economy

Santo Domingo, DR
In the process of reactivation of the Dominican economy after the impact of the Covid-19 pandemic, four sectors are characterized by their dynamism. They are remittances, tourism, free zones, and construction.

The rebound experienced by these sectors has been due, fundamentally, to the behavior experienced by the North American economy. This shows that external factors have caused, in an ambiguous manner, positive and negative results in the performance of the national economy.

In the United States, where unemployment is at one of its lowest levels in history, at 3.5%, consumption has become one of the critical elements in the growth of the U.S. economy.

Americans buy, among other things, food, clothing, footwear, household appliances, cellular phones, and motor vehicles. Much of the production of these goods is usually done outside the United States.

Due to this increase in North American consumption, the Dominican Republic’s export processing zones experienced an expansion during the first four months of 2021. As a result, it obtained a growth of 23.1%.

Similarly, construction expanded by 53.1%. However, tourism was still at a standstill during the first four months of last year; for this reason, it decreased by -23.3%.

Remittances reached the appreciable figure of 3,459 million dollars from January through April last year.

These levels of reactivation of the sectors mentioned above of the Dominican economy were a direct result of the monetary and fiscal expansion policy of the United States government.

This, of course, was combined with an analogous policy by the national authorities, which generated levels of financial liquidity that were expressed in an increase in private investment, both domestic and foreign.

Naturally, some of these figures are inflated due to the statistical rebound experienced. This is so because they have been calculated about the year of the pandemic, 2020, and not concerning 2019, which is the one for which a standardized measurement index is available.

The decline in national production
Despite the statistical rebound that adds to the economic reactivation of 2021, the agricultural sector, however, had the months from January to April 2021 mediocre results. It grew only 1.3%.

In 2021, despite the inflated economic growth figure of 12.3% of GDP, the agricultural sector only obtained a fragile expansion of 2.6%.

It is important to note that during the twelve years before the pandemic (2008-2019), agricultural sector growth averaged 4.5% annually.

The highest level occurred in 2009, reaching 10.2%, which accounted for nearly 70% of GDP growth that year. It was an actual golden age for the national agricultural sector, corresponding to the slogan that eating comes first.

However, as of 2013, the incidence of this sector in the composition of the gross domestic product plummeted, reaching only 1.8% in 2015. Over the next three years, it gradually recovered to 4.2% by 2019.

By 2021, even with a statistical rebound of 12.3% GDP growth, the agricultural sector accounted for only 1.1% of that growth, one of the lowest rates in national history.

For January through April of this year, 2022, the results of national agricultural growth are no more promising than last year’s. On the contrary, they are incredibly discouraging. First, it was only 1.5%, and for April, unfortunately, 0.2%.

If the numbers speak eloquently enough, it is evident that there is notable neglect on the part of the current national authorities, at a time of world and national crisis, concerning a priority sector for the development of our countries, such as agriculture and livestock.

At this time, it must be understood that food sovereignty and security are the first order to ensure the survival of the national population. Not understanding this is to lead the Dominican people to hunger, ruin, and misery.

New realities
During the first four months of 2021, the tourism sector, as we have already said, had not yet begun its complete recovery process. Airports were empty. The skies were clear. The sector was down -23.3%.

But, due to the relaxation of confinement, savings, stimulus policies, and the desire to travel and reconnect with nature, the number of tourists began to grow dramatically, reaching a year-on-year growth of 39.9% from January to April year.

It is, however, the only sector that is still growing after the beginning of the economic reactivation stage. In local manufacturing, for example, there has been a decrease from 14.5% last year to 4.4% at present. From a boom of 23.1% in free trade zones, it is now down to 8.2%.

What has happened in the construction sector is striking. After being sky high, with 53.1% in the first four months of last year, it is now down to 4.6%.

In the area of remittances, although they are still relatively high, from January through April of this year, they have already experienced a decrease of 253 million dollars, equivalent to 8.2% concerning the same period last year.

In summary, we want to express that the figures for the first four months of this year already show a slowdown concerning 2021. This is essentially due to two reasons.

The first has to do with the change of monetary and fiscal stimulus policies, by the United States and our own authorities, for one, increasing interest rates and decreasing liquidity in the financial markets to combat inflation.

The second, of a geopolitical nature, corresponds to Russia’s war in Ukraine, which generates the high prices of fuels, commodities, and fertilizers.

The fear is that the first of these policies will produce a recession; the second will maintain inflation.

The worst-case scenario is that stagflation will emerge.

In any case, it is essential to understand that our economy is ambivalent, navigating a new, confusing and uncertain reality due to a combination of external and internal factors.