Dominican Republic seeks the formula for strong growth with poverty reduction

It is a small economy, but it has big ambitions.

The Dominican Republic went from being a low- to middle-income country faster than any of its Latin American peers and now wants to reach high income.

To achieve this, the Government is counting on investment to continue flowing at the rate it is today, but that alone does not solve the problems that have proven to be the most difficult, such as poverty and inequality.

That will require more than promoting itself abroad as a country eager to do business.

For decades, the Caribbean country has grown well above the average for the region, with rates close to 5%.

Last year was an exception, with an increase in the Gross Domestic Product (GDP) of 2.4%.

The aggressive increase in interest rates imposed by the central bank took effect and lowered inflation.

As a consequence, the construction sector, one of the most dynamic, which largely depends on financing, fell.

Other sources of foreign currency and income continued to rise: tourism generated 10 billion dollars, remittances sent by compatriots abroad recorded another 10 billion and exports totaled 14 billion.

Foreign direct investment reached a record of 4.3 billion.

These are larger numbers for such a small country.

The Dominican Republic is the twelfth largest country in Latin America (measured by population), but has risen to become the ninth largest economy.

According to an estimate by the International Monetary Fund, the country has exhibited the speed of convergence towards the highest average income in the last 50 years, above Panama and Chile.

The key has been investment, says Pavel Isa, Minister of Economy, Planning and Development.

Between 2019 and 2023, investment as a proportion of GDP went from around 24% to 30%, says the official.

“That is the type of rate that we could observe at the time of the explosive growth of the economies of Southeast Asia and we are seeing it in the Dominican Republic,” says Isa, referring to the historical growth of countries like Singapore.

In the Dominican Republic, this investment has been primarily private and the one originating from Spain stands out.

According to the central bank, Spanish companies invested in the construction and operation of 33,836 hotel rooms between 2022 and 2023. This figure far exceeds the national investment, which stood at 22,753 rooms in the same period.

That of the United States was 7,837, Mexico 3,078 and Italy 1,961.

Pavel Isa, Minister of Economy, Planning and Development of the Dominican Republic, at the Annual Meeting of the Assembly of Governors of the Inter-American Development Bank, at the Barceló Bávaro Palace hotel, in Punta Cana (Dominican Republic) on March 8, 2024. CELLO CAMACHO

Historically burdened by inefficient electricity distribution companies dependent on hydrocarbons and coal, the Government promotes the installation of renewable energies among entrepreneurs.

In addition, the Ministry of Finance is working on issuing a bond with environmental, social and governance (ESG) criteria this year to finance a project in water management.

The country reached its highest credit rating last year, but has yet to achieve investment grade.

This year, the Dominican Republic made headlines worldwide by announcing that it would carry out a pilot program to reduce the working day to 4 days per week, something unusual among countries with low productivity.

“We want to experiment,” says Isa, “reduced working hours are an experiment we are trying to see if it helps increase productivity.

It could not only be beneficial for the company, but also for the people.”

The success story of Latin American countries like this one, which have grown at high rates for sustained periods, has taken a turn.

Intense protests in Chile, Peru and Panama, which have paralyzed the country for weeks, are being digested abroad as a warning that goes something like this: economic growth is not enough.

A study by the Inter-American Development Bank (IDB), presented this week in Punta Cana within the framework of its Annual Meeting of Governors, shows that around 1% of the wealthiest population in the Dominican Republic controls around 42% of the total wealth , levels comparable to El Salvador, Bolivia and the United States.

In recent years, governments have understood that income inequality, poverty and precariousness in the informal part of the economy cannot be resolved simply by opening the door to private investment.

“Monetary poverty has been reduced, we are happy, but we still have a significant proportion of the population receiving insufficient income,” acknowledges the official.

Under this Administration, more than 20 increases in the minimum wage in the tourism sector have been decreed, as well as other increases in general salaries.

“We have the mission, the determination to continue reducing the proportion of the population that lives in poverty, because it is not just about income,” he says.

Half of the economically active population operates informally, many of them in high precariousness

“Despite the significant advances, both economic and social, that the Dominican Republic is achieving, I believe that the challenges remain very significant,” Isa concluded.