Dominican president-elect faces challenges

Only a few years ago, the Dominican Republic was one of Latin America's economic darlings. It's now the black sheep.

When President-elect Leonel Fernández takes office next Monday, he'll face a far different scenario than when he ran this Caribbean country from 1996 to 2000. Back then, it was enjoying growth rates of 8 percent a year driven by manufacturing-for-export industrial parks.

The boom burst a year ago when a series of banks collapsed and the government spent $2.2 billion, about 20 percent of the country's gross domestic product, to bail out depositors.

''This is a president who's going to have a very short honeymoon,'' said Dan Erikson, Caribbean analyst with the Inter-American Dialogue in Washington D.C. ``He's got some tough challenges.''

The Dominican economy is set to sink by 1 percent to 1.25 percent this year, second only in the region to Haiti's projected drop of 2 percent, according to the Economic Commission for Latin America and the Caribbean and the American Chamber of Commerce of the Dominican Republic.

Inflation is on track to break 52 percent this year, unemployment is closing in on 17 percent and the Dominican currency has plunged in value from 16 pesos to the U.S. dollar in the late '90s to 45 pesos now.

The economic turmoil is accompanied by increasingly frequent blackouts, fuel shortages and a frustrated populace.

Immigration is soaring -- more than 7,000 illegal Dominican immigrants have been detained in Puerto Rico since Oct. 1, double the number of the preceding 12 months. Last week, a group of 100 students rioted at the University of Santo Domingo.

''The turnaround has been so severe,'' Erikson said. ``There's ongoing frustration.''

However, the country's crucial tourism sector, which brought in $3.1 billion last year, has so far remained unscathed by the bubbling crisis.

Arrivals jumped 20 percent last year and hotel occupancy bounced up 10 points, to a robust 73 percent, according to Ernst & Young.

''It's still our strongest destination,'' said Brad King, manager of Plaza Vacations in Coral Springs. ``The price can't be beat.''

Most of the country's tourist destinations lie in relatively isolated areas, such as Punta Cana, far from the turbulence in capital Santo Domingo, and many are all-inclusive resorts.

''You basically go there and you don't feel you have to go out of the hotel compound,'' said Rogerio Basso, Caribbean hospitality analyst with Ernst & Young in Miami. ``Punta Cana even has its own international airport so you fly right in.''

Fernández's post-inaugural priority will be to avoid a default on a $27 million interest payment on a bond that the nation missed two weeks ago.

He's already announced that he's considering several new taxes to help fill the budget deficit, estimated at $100 million to $200 million, and signing a new accord with the International Monetary Fund.

The economy could also receive a shot in the arm from the new free-trade pact, signed a week ago, that Dominican Republic entered into with Central America and the United States. That could stimulate more exports and cheapen imports.

But analysts warn that Fernández faces several double-edged swords.

His proposed 16 percent tax on airfares could put the Dominican Republic at a competitive disadvantage as compared to other Caribbean destinations, hurting tourism, and tax hikes could create unrest in the populace.

Key is keeping a lid on violence so as not to scare away visitors or foreign investors, who remain keen particularly about the country's tourism prospects. ''The political situation can't get out of hand,'' Basso said.

[Source: By Christina Hoag, The Miami Herald, Miami, Usa, 10Aug04]

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