Dominican Republic - ECONOMY

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LONG DEPENDENT ON SUGAR, the Dominican Republic diversified its economy during the 1970s and the 1980s to include mining, assembly manufacturing, and tourism. In 1987, the country's gross domestic product (GDP) was approximately US$5.6 billion, or roughly US$800 per capita, which made the island nation the third poorest state in Latin America. A lower-middle- income country by World Bank standards, the Dominican Republic depended on imported oil and, despite diversification, retained its historical vulnerability to price fluctuations in the world sugar market. Although poverty continued to be acute for many rural citizens in the 1980s, the economy had progressed significantly since the 1960s.

Beginning in the late 1960s, the Dominican economy began the arduous task of diversifying away from sugar. By 1980 the mining industry had become a major foreign exchange earner; exports of gold, silver, ferronickel, and bauxite constituted 38 percent of the country's total foreign sales. In the 1980s, the assembly manufacturing industry, centered in Industrial Free Zones, began to dominate industrial activity. During this decade, the number of people employed in assembly manufacturing rose from 16,000 to nearly 100,000, and that sector's share of exports jumped from 11 percent to more than 33 percent. Tourism experienced a similarly dramatic expansion during the 1980s, when the number of hotel rooms quadrupled. Revenues from tourism surpassed sugar earnings for the first time in 1984, and by 1989 total foreign exchange earnings from tourism nearly matched earnings from all merchandise exports.

Despite indisputable advances, by 1990 the country also faced serious inflation, chronic balance-of-payments deficits, and a large foreign debt. More important, whereas the Dominican Republic had made great strides since the dictatorial rule of Rafael Le�nidas Trujillo Molina (1930-61), the nation's political economy continued to be strongly influenced by patronage, graft, and a lingering lack of political will to confront the traditional institutions that continued to restrain economic performance.

Dominican Republic - GROWTH AND STRUCTURE OF THE ECONOMY

Only three decades after their arrival on Hispaniola (La Isla Espa�ola) in 1492, Spanish mercantilists largely abandoned the island in favor of the gold and silver fortunes of Mexico and Peru. The remaining Spanish settlers briefly established an economic structure of Indian labor tied to land under the systems of repartimiento (grants of land and Indian labor) and encomienda (grants of Indian labor in return for tribute to the crown). The rapid decline of the Indian population ended the encomienda system by the mid-1500s, however. Little productive economic activity occurred in Eastern Hispaniola (the approximate site of the present-day Dominican Republic). The French assumed control of the western third of the island in 1697, establishing Saint- Domingue (modern-day Haiti), which developed into a productive agricultural center on the basis of black slave labor. In the eastern part of the island, cattle ranching was common, but farming was limited to comparatively small crops of sugar, coffee, and cacao.

The Spanish side of Hispaniola slowly developed a plantation economy during the nineteenth century, much later than the rest of the West Indies. For much of the century, political unrest disrupted normal economic activity and hindered development. Corrupt and inefficient government, by occupying Haitian forces and by self-serving Dominican caudillos, served mainly to increase the country's foreign debt. After failing to achieve independence from Spain in the Ten Years' War (1868-78), Cuban planters fled their homeland and settled in Hispaniola's fertile Cibao region, where they sowed tobacco and later cacao. When tobacco prices fell in the late nineteenth century, United States companies began to invest heavily in the large-scale cultivation of sugar, a crop that dominated the Dominican economy for most of the twentieth century.

The rise of the sugar industry represented only one aspect of growing United States influence on the island in the early twentieth century. In 1904 United States authorities established a receivership over Dominican customs to administer the repayment of the country's commercial debt to foreign holders of Dominican bonds. United States forces occupied the Dominican Republic from 1916 to 1924, for the purposes of restoring order and limiting European (primarily German) influence. Although security interests motivated the occupation, the United States also reaped commercial benefits. Dominican tobacco, cacao, and sugar, previously exported to French, German, and British markets, were shipped instead to the United States. The powerful United States sugar companies came to dominate banking and transportation, and they benefited from the partition of former communal lands, which allowed the companies to augment their holdings. Although politically unpopular, the United States presence helped stabilize Dominican finances and greatly improved the physical infrastructure, as roads, sanitation systems, ports, and schools were built. The United States Marines left in 1924, but United States economic advisors remained to manage customs revenues until 1932, two years into the thirty-one year Trujillo dictatorship.

For more than three decades, the Trujillo regime invested heavily in infrastructure, but the bulk of economic benefits accrued to the dictator, his family, and his associates. Trujillo's primary means of self-enrichment was the national sugar industry, which he rapidly expanded in the 1950s despite a depressed international market. In the process of establishing his enormous wealth, he forced peasants off their land, looted the national treasury, and built a personal fiefdom similar to those of the Somoza and the Duvalier families in Nicaragua and Haiti, respectively. Before his assassination in 1961, Trujillo and his coterie reputedly possessed more than 600,000 hectares of improved land and 60 percent of the nation's sugar, cement, tobacco, and shipping assets. This immense wealth encompassed eighty-seven enterprises, including twelve of the country's fifteen sugar mills. Although the economy experienced steady growth under Trujillo, roughly 6 percent a year in the 1950s, the unequal distribution of that growth impoverished rural Dominicans as thoroughly as were any of their counterparts elsewhere in the Western Hemisphere.

The period between Trujillo's assassination and the 1965 civil war was chaotic economically as well as politically. Instability prompted capital flight. While demands on spending increased--mainly as a result of social programs instituted under the presidency of Juan Bosch Gavi�o (February-September, 1963)-- bureaucratic upheaval hampered the collection of needed revenue. The country's economy was buoyed to some extent by infusions of cash from abroad in the forms of foreign aid (mainly from the United States) and loans.

During the presidency of Joaqu�n Balaguer Ricardo (1966-78), the country experienced a period of sustained economic growth characterized by relative political unity, economic diversification, the establishment of a developmental role for the state, and a more equitable distribution of the benefits of growth among the citizenry. During its peak growth period, from 1966 to 1976, the economy expanded at a rate of nearly 8 percent a year, one of the highest growth rates in the world at the time. With the formation of the National Planning Council in 1966, the national government assumed a developmental role after centuries of neglect. The Balaguer administration increased spending on social services, introduced the Industrial Incentive Law (Law 299) to protect domestic manufacturing and to spur more import substitution industries, and promoted mining, assembly manufacturing, construction, and tourism. Mining in particular took on a greater role, as that sector's share of exports grew from an insignificant level in 1970 to 38 percent by 1980. Land reform programs helped rural dwellers to improve their economic status somewhat, but government pricing policies and the trend toward urbanization inhibited growth in rural areas. The country's physical infrastructure--roads, ports, and airfields-- also expanded.

The apex of the Dominican economic "miracle" came in 1975 when sugar prices peaked, other commodity prices were high, and gold exports became significant. Despite these fortuitous circumstances, the country still failed to register a trade surplus that year, an indication of structural problems in the economy. Economic growth, slowed by the late 1970s as sugar prices fluctuated and the quadrupling of oil prices that began in 1973, turned the country's terms of trade sharply negative. Growing balance-of-payments shortfalls, declining government revenues resulting from widespread tax exemptions, and growing expenditures on state-operated companies rapidly increased the country's debt. The symbolic, if not the real, end of the Dominican economic "miracle" arrived in the form of Hurricane David and Hurricane Frederick in 1979. The two storms killed more than 1,000 Dominicans, and they caused an estimated US$1 billion in damage.

In the early 1980s, oil prices jumped again, international recession stifled the local economy, sugar prices hit a forty- year low, and unprecedentedly high interest rates on foreign loans spiraled the economy into a cycle of balance-of-payments deficits and growing external debt. Because economic growth averaged slightly above 1 percent per annum during the first half of the decade, per capita income declined. Another devastating blow was dealt in the 1980s by reduced United States sugar quotas, in response to the lobbying efforts of domestic producers, which served to cut the volume of Dominican sugar exports to the United States by 70 percent between 1981 and 1987. The unstable economic situation prompted the administration of Salvador Jorge Blanco (1982-86) to enter into a series of negotiations with the International Monetary Fund (IMF) and to begin to restructure government economic policies. In 1983 the Jorge government signed a three-year Extended Fund Facility with the IMF that called for lower fiscal deficits, tighter credit policies, and other austerity measures. This paved the way for the first in a series of rescheduling agreements with foreign creditors. Although the reschedulings slowed the pace of repayment, the higher consumer prices that resulted from the agreements sparked food riots. The administration consequently suspended the agreements. In 1985 the Jorge government signed a one-year IMF Standby Agreement that included more austerity measures and the floating of the Dominican Republic peso in relation to the dollar for the first time in decades. Serious differences of opinion over the pace of reforms again ended the agreement prematurely, and the electorate ousted Jorge's Dominican Revolutionary Party (Partido Revolucionario Dominicano--PRD) in 1986 in favor of former president Balaguer, who evoked memories of the economic growth of the 1970s.

In contrast to Jorge, the Balaguer administration, refusing to negotiate with the IMF, sought to avoid the austere economic conditions that IMF agreements usually entailed. The economy expanded rapidly in 1987, but then contracted sharply in 1988, largely in response to government spending patterns. Balaguer's continued devaluation of the peso maintained the country's burgeoning export sector and tourist trade, but eroded the quality of life of poorer Dominicans earning fixed salaries. The administration's expansionary fiscal policies also fueled unprecedented inflation (prices rose 60 percent in 1988 alone), which worsened economic conditions for poor people. By the close of the decade, the country's foreign debt had reached nearly US$4 billion, roughly double the 1980 figure.

High levels of inflation, increasing debt, and persistent deficits masked several positive trends during the 1980s. The most positive development was the country's rapid diversification away from its dependence on sugar. New jobs in assembly manufacturing offset many of the lost jobs in the cane fields. Employment in assembly operations grew from 16,000 in 1980 to nearly 100,000 by 1989. This represented the world's fastest growth in free-zone employment during the 1980s. By 1987 the value of assembly exports surpassed that of traditional agricultural exports. The Dominican Republic also enjoyed the Caribbean's fastest growth in tourism during the 1980s. Although the mining industry suffered from low prices and labor disputes, it contributed a significant percentage of foreign exchange as well. The agricultural sector also diversified to a limited degree with a new emphasis on the export of nontraditional items such as tropical fruits (particularly pineapple), citrus, and ornamental plants to the United States under the Caribbean Basin Initiative.

Dominican Republic - ECONOMIC POLICY

The Budget Office within the Technical Secretariat of the Presidency (Secretaria T�cnica de la Presidencia) administered fiscal policies. The fiscal year (FY) concurred with the calendar year throughout the government, except in the case of the State Sugar Council (Consejo Estatal de Az�car--CEA), which ran on the cycle October 1 to September 30. Fiscal authorities traditionally pursued rather conservative policies, allowing for small deficits and occasional surpluses. Fiscal deficits grew in the 1980s, however, as the result of dwindling revenues and increasing losses from price and exchange-rate subsidies to state-owned enterprises. Revenues, as a percentage of GDP, fell from 16 percent in 1970 to a low of 10 percent by 1982, placing the Dominican Republic below virtually every Latin American country in this category. Liberal incentive laws enacted to spur industrialization during the 1960s and the 1970s were the main cause of the erosion of the revenue base. Beginning with the Jorge administration, officials began to increase taxes on an ad hoc basis, assessing mainly international trade. A moderate expansion of revenues resulted. Nonetheless, fiscal deficits averaged roughly 5 percent of GDP a year in the mid-1980s to the late 1980s. The shortfalls were financed by the printing of more pesos, a policy that accelerated inflation. Successive governments demonstrated a lack of political will to address the structural deficiencies on both the expenditure and the revenue sides of the national budget.

The execution of fiscal policies was influenced by personal and political custom. For example, many businesses illegally received tax-exempt status because of political contacts, while other qualified firms did not. Tax evasion among wealthier Dominicans was common. Government corruption, particularly among the parastatals, was believed to be similarly commonplace. The 1989 conviction of former president Jorge on charges that he and military leaders embezzled large sums on military contracts illustrated the extent of official corruption. The lack of competitive bidding on government construction contracts also contributed to perceptions of fiscal mismanagement. Despite Balaguer's anticorruption drive of the 1980s,institutionalized graft prevailed.

According to official statistics, the Dominican labor force had grown to 2.8 million by 1988. The labor force equaled about 74 percent of the nation's 3.8 million economically active citizens, a group that included all those between the ages of 15 and 64. Official unemployment stood at 26 percent, but like many of the country's labor statistics, this measure was only an approximation. More than 80,000 workers entered the job market annually in the 1980s. Unemployment declined slightly in the late 1980s, and it was expected to continue to drop because of the explosive growth of free-zone manufacturing jobs. The seasonal nature of jobs in agriculture and tourism, however, created patterns of structural underemployment that affected a quarter of the labor force. Half of the economically active population suffered from either unemployment or underemployment.

The structure of the labor force had changed significantly during the post-Trujillo era as agriculture's share of output diminished. In 1950 agriculture had employed 73 percent of Dominican labor, but by the end of the 1980s it accounted for as little as 35 percent. Industry and services had incorporated approximately 20 percent and 45 percent, respectively, of displaced agricultural labor. As a consequence of gaps in the labor statistics, official estimates of the female segment of the economically active population varied widely, from 15 to 30 percent of the labor force. Whatever the total figures, the role of women, particularly in the urban economy, was growing by the late 1980s. Seventy percent of the employees in free zones were women; as greater numbers of free zones opened in the late 1980s, the rate of employment for females more than doubled the rate of employment for males. This shift represented a major transformation in the labor force; previously, the percentage of women in the Dominican work force had been lower than that for any other Latin American country. Men continued to dominate agricultural jobs in the late 1980s. These were among the lowestpaid jobs in the country. The highest salaries were earned in mining, private utilities, financial services, and commerce. The distribution of income among workers was highly skewed; the top 10 percent earned 39 percent of national income, while the bottom 50 percent garnered only 19 percent.

Dominican labor laws dated back to the Labor Code of 1951. Among the many matters on which the code ruled were the maximum number of foreigners that could be employed in a workplace, guidelines for labor unions, child labor practices, the minimum wage, the length of the workweek, vacations, holiday pay, Christmas bonuses, overtime, social security, and other benefits. No government agency enforced labor legislation, however, which reduced the actual power of most workers vis-�-vis management.

In the 1980s, the most controversial labor law was the one governing the national minimum wage. Although the Congress of the Republic increased minimum wages on several occasions throughout the decade, unusually high inflation usually outpaced these increases, which reduced the real wages of workers. General strikes or other confrontations between labor and government frequently resulted. Government officials were reluctant to grant frequent raises in the minimum wage, in part, because they felt the need to keep Dominican wages competitive with those of other developing countries. Dominican wages did indeed remain lower than those in other Caribbean Basin countries, with the exception of impoverished Haiti.

Organized labor represented between 12 percent and 15 percent of the labor force in the late 1980s. The number of active union members ranged somewhere between the government's estimate of 250,000 and labor's figure of more than 500,000. Thousands of unions were syndicated into eight major labor confederations; nearly 100,000 Dominicans also belonged to independent unions. Scores of peasant-based movements and organizations were also active. Thirty-two percent of the eight labor confederations' member unions were affiliated with the International Confederation of Free Trade Unions, 16 percent with the World Confederation of Labor, and slightly more than half with international communist unions. Unions appeared only after the Trujillo era, and in the 1980s they were still young, weak, poorly financed, and politically divided. The issues most important to Dominican labor included rising prices, the declining real minimum wage, and collective bargaining. Industrial disputes increased noticeably in the late 1980s. In particular, these took the form of general strikes and intensified activism among professionals. Organized labor had begun to establish a foothold in the free zones, and disputes over unionization in these areas loomed as the fundamental labor issue of the future.

Many Dominicans escaped formal government data collection, but nonetheless played a major economic role, particularly in the urban economy. Estimates of the size of the informal urban economy in the late 1980s ranged from 20 percent to 50 percent of the total urban labor force. Workers in the informal sector included self-employed people, unpaid family workers, domestic servants, and very small businesses or "microenterprises" of only a few workers in manufacturing and assorted services. Although little reliable data existed on the country's informal sector, many in that sector received economic assistance from the United States Agency for International Development (AID), the InterAmerican Foundation, and other development agencies to promote their expansion into the formal sector. Some observers believed that the growth of the informal sector was a response to the complex legal framework for business, restrictive exchange-rate controls, widespread informal financial markets, pricing and tax policies, and the often-cited Dominican preference for highly personal relations.

Dominican Republic - AGRICULTURE

Agriculture, the backbone of the Dominican economy for centuries, declined in significance during the 1970s and the 1980s, as manufacturing, mining, and tourism began to play more important roles in the country's development. During the 1960s, the agricultural sector employed close to 60 percent of the labor force, contributed one-quarter of GDP, and provided between 80 and 90 percent of exports. By 1988, however, agriculture employed only 35 percent of the labor force, accounted for 15 percent of GDP, and generated approximately half of all exports. The declining importance of sugar, the principal source of economic activity for nearly a century, was even more dramatic. Sugar's share of total exports fell from 63 percent in 1975 to under 20 percent by the late 1980s. The transformation in agriculture paralleled the country's demographic trends. In 1960, some 70 percent of the country's population was rural; by the 1990s, upwards of 70 percent was expected to be urban. Government policies accelerated urbanization through development strategies that favored urban industries over agriculture in terms of access to capital, tariff and tax exemptions, and pricing policies. As a consequence, the production of major food crops either stagnated, or declined, in per capita terms from the mid-1970s to the late 1980s. Lower world prices for traditional cash crops and reductions in the United States sugar quota also depressed the production of export crops in the 1980s.

Dominican Republic - AGRICULTURE - Land Tenure and Land Policy

The uneven distribution of arable land continued to be a fundamental obstacle to the economic development of the Dominican Republic in the 1980s. Despite active attempts to reform land tenure patterns, the basic dichotomy of latifundio and minifundio continued to be the predominant feature of rural life. According to the 1981 agricultural census, 2 percent of the nation's farms occupied 55 percent of total farmland. By contrast, landholdings averaging under 20 hectares, which represented 82 percent of all farms (314,665 units), covered only 12 percent of the land under cultivation. Land distribution on both extremes was notably worse. Some 161 farms, 0.1 percent of all farms, occupied 23 percent of all productive land, whereas tens of thousands of peasants possessed only a few tareas. (The tarea, the most common measurement of land on the island, equalled one-sixteenth of a hectare.)

The government was the largest landholder. The CEA and the Dominican Agrarian Institute (Instituto Agrario Dominicano--IAD), the national land reform agency, controlled the overwhelming share of public-sector land, most of which was derived from Trujillo's estate. The two major sugar producers in the private sector, Central Romana and Casa Vicini, along with several large cattle ranches, represented the largest private landholdings.

Data from the 1981 census displayed a land tenure structure that was essentially the same as that reflected in the 1971 census. The total number of farms in the 1981 survey was 385,000, up from 305,000 a decade earlier.While the number of farms had increased substantially, the amount of cultivated land had actually decreased slightly, from 2.74 million hectares in 1971 to 2.67 million hectares in 1981. The greater number of farms had resulted from agrarian reform measures and population growth, whereas the decrease in land cultivated had been caused by erosion, development, urbanization, the decline of the sugar market, and other factors. The size of the average farm shrank from 1,439 hectares in 1971 to 698 hectares in 1981, an indication of some minor success in land reform. Types of ownership were not so well documented, but government surveys indicated that individuals owned 66 percent of all farms, families owned 16 percent, and other types of tenure, such as cooperative ownership, sharecropping, and renting, accounted for the remaining 18 percent.

The concentration of land in the Dominican Republic, although it could trace its roots back to Christopher Columbus's parceling of land, had resulted principally from the "latifundization" of land with the advent of commercial sugarcane production in the late nineteenth century. The concentration of arable land ownership increased after 1948, when Trujillo intensified his involvement in the sugar industry. Trujillo doubled the amount of land dedicated to sugarcane, in a little over a decade. The dictator and his cronies seized as much as 60 percent of the nation's arable land through colonization schemes, the physical eviction of peasants from their land, and the purchase of land through spurious means. In the aftermath of Trujillo's assassination in 1961, the government expropriated his family's landholdings by means of Decree 6988, thus setting the stage for contemporary land policy.

In 1962 the post-Trujillo Council of State created the IAD, to centralize agrarian reform and land policy, with a mandate to redistribute the ruler's former holdings to peasants. Agrarian reform was hindered by the country's stormy political transitions in the 1960s, but it was strengthened in 1972 by legislation that authorized the government to expropriate unused farms in excess of 31.4 hectares under certain conditions. During the 1970s and the 1980s, however, the IAD made slow and uneven progress in dividing up the government's huge new properties. IAD reforms provided individuals, cooperatives, and settlements (asentamientos) with parcels of land. A range of support services, including land- clearing, road construction, irrigation, agricultural extension services, and credit usually were also provided. By the end of 1987, the IAD and its predecessor agencies had redistributed more than 409,000 hectares of land. The redistribution included 454 projects that benefited 75,000 families, or 460,000 citizens. In the late 1980s, IADsponsored land yielded 40 percent of the national output of rice, 75 percent of tomatoes, 31 percent of corn, and 39 percent of bananas and plantains.

Despite the broad mandate for land reform, a cause strongly advocated by the Balaguer administration in the late 1980s, many criticized the IAD's overall lack of progress since 1962. The greatest progress on land reform occurred from 1966 to 1978, when the government redistributed approximately 174,000 hectares. Reform slowed considerably from 1978 to 1986, when only 66,000 hectares were redistributed. Making land available, however, is only one component of successful reform. Peasants criticized the IAD's sluggish performance in transferring land titles, its providing mainly marginal agricultural land, and the generally inadequate level of support services caused by the lack of funding and the ineffectual management of the IAD. Only 38 percent of IAD land was actually devoted to the cultivation of crops in the late 1980s; 9 percent was devoted to livestock and 53 percent to forestry or to other uses.

After decades of wrangling, the Dominican Republic completed the 1980s with the issue of land largely unresolved from the perspectives of both peasants and commercial farmers, a failure most evident in data demonstrating an ongoing pattern of skewed land ownership. Frequent spontaneous land seizures and invasions by peasants of underused land throughout the 1980s epitomized rural frustrations. On one end of the economic spectrum, numerous rural associations, disconcerted by the pace and the quality of land reform, participated in land seizures, demanding "land for those who work it," an approach that forced the land reform issue into the judiciary rather than into the legislature. On the other end of this spectrum, agribusinesses complained of the government's inconsistent policies with regard to the expropriation of land. Some analysts viewed such inconsistencies as a deterrent to new investment in agriculture and therefore as counterproductive to the republic's efforts to diversify its economy away from sugar. Poverty continued to be a largely rural phenomenon and land a sensitive political subject, indicating that agrarian reform would persist as an issue.

An estimated 27,452 square kilometers, or 57 percent of the Dominican Republic's total territory of 48,442 square kilometers, was devoted to agriculture-related activities in the late 1980s. According to a soil survey conducted in 1985, 43 percent of the country's total area was moderately suited, or well-suited, for cultivation. The Cibao and the Vega Real regions, north and northeast of Santo Domingo, respectively, contained the republic's richest agricultural lands and produced most of the nation's food and cash crops, with the exception of sugar. Sugarcane cultivation centered on the coastal plains of the south and the east.

Dominican Republic - AGRICULTURE - Farming Technology

In the 1980s, Dominican farmers still suffered from the legacies of Trujillo's neglect and industrial strategies that placed little emphasis on agricultural development outside the sugar industry. As a result, the average farmer used far fewer purchased inputs, such as fertilizers, tractors, and irrigation, than his counterparts in many other Latin American countries.

Some progress had been made in irrigation systems by the late 1980s. The poor distribution of the country's generally adequate rainfall necessitated the development of irrigation under the management of the governmental National Water Resources Institute (Instituto Nacional de Recursos Hidr�ulicos--INDRHI). The amount of irrigated land increased rapidly with the construction of several dams, such as Tavera Dam and Sabana Yegua Dam, in the 1970s and the 1980s. By the late 1980s, however, only about 139,000 hectares, less than 15 percent of arable land, benefited from irrigation. Further expansion of irrigation was a key to reaching self-sufficiency, particularly in rice production. INDRHI pursued ambitious plans for future irrigation; it was projected that more than 200,000 hectares of land would be functionally irrigated by the early 1990s.

The Secretariat of State for Agriculture (Secretaria de Estado para la Agricultura--SEA) attempted to improve farming technology through its extension service and a series of agricultural research centers. The greatest constraints were money and training. The Superior Institute of Agriculture, established in 1962 and affiliated with the Catholic University Mother and Teacher (Universidad Cat�lica Madre y Maestra--UCMM) in Santiago, successfully trained scores of agronomists; it also achieved crop innovations, the most important of which, in the late 1980s, concerned sorghum and African palm oil. Several regional, and generally crop-specific, institutes also conducted agricultural research.

Dominican Republic - Cash Crops

Despite ongoing diversification efforts, in the late 1980s the Dominican Republic continued to be the world's fourth largest producer of sugarcane. The sugar industry influenced all sectors of the economy and epitomized the nation's vulnerability to outside forces. Fluctuating world prices, adjustments to United States sugar quotas, and the actions of United States sugar companies (such as Gulf and Western Corporation's sale of all its Dominican holdings in 1985) all could determine the pace of economic development for decades.

Columbus introduced sugarcane to Hispaniola, but sugar plantations did not flourish in the Dominican Republic until the 1870s, much later than on most Caribbean islands. Investment by United States sugar companies, such as the United States South Porto Rico Company and the Cuban-Dominican Sugar Company, rapidly transformed the Dominican economy. These companies had established themselves by the 1890s, and between 1896 and 1905 sugar output tripled. During the United States occupation (1916- 24), the sugar industry expanded further, acquiring control of major banking and transportation enterprises.

Trujillo constructed a string of sugar mills, many of which he owned personally, beginning in 1948. The elimination of United States sugar quotas for Cuba after the Cuban Revolution of 1959 further enhanced the economic role of sugar, as the Dominican Republic assumed Cuba's former status as the main supplier under the quota system.

Heavy reliance on sugar created a number of economic difficulties. The harvest of sugarcane, the zafra, is arduous, labor-intensive, and seasonal, and it leaves many unemployed during the tiempo muerto, or dead season. Haitian laborers have harvested most of the Dominican cane crop since the late nineteenth century, by agreement between Hispaniola's two governments. Although Haitian cane cutters lived under conditions of virtual slavery, two factors continued to draw them across the border: depressed economic conditions in Haiti and the reluctance of Dominicans to perform the backbreaking, poorly regarded work of cane cutting.

After the death of Trujillo, Dominican policy makers faced the sensitive issue of how best to manage the dictator's economic legacy, which on the one hand was the rightful property of the people, but on the other hand represented more of a drain on national finances than a catalyst to development. These contradictions played themselves out within the CEA, an entrenched, politicized, and inefficient parastatal.

The role of sugar changed markedly in the 1980s as external conditions forced the national economy to diversify. Sugar prices had reached unprecedented highs in 1975 and again in 1979. The international recession of the early 1980s, however, pushed prices to their lowest level in forty years. Lower world prices hurt the Dominican economy, but the reduction of sales to the United States market, as a result of quota reductions that began in 1981, was even more costly because of the preferential price the United States paid under the quota system. The international market continued to be unpromising in the late 1980s. The market had been glutted by over-production, caused principally by European beet growers; major soft-drink manufacturers had also begun to turn to high-fructose corn sweeteners and away from cane sugar.

In the late 1980s, the CEA continued to control about 60 percent of national sugar output through the ownership of twelve of the country's sixteen sugar mills, employment of a work force of 35,000, and possession of 233,000 hectares of land, only 100,000 hectares of which were sown with sugarcane. Governed by a board--the members of which were drawn from the public sector, labor, and the private sector--the CEA operated at a financial loss and at lower productivity than the two major private sugar companies, Casa Vicini and Central Romana. Besides these major producers, thousands of small farmers (colonos) also grew cane. Sugar from all properties covered an estimated 240,000 hectares in 1987, and it yielded 816,000 tons, well below the 1.25 million tons harvested in 1976, the year of peak volume. Worse yet, lower prices kept 1987 sales at less than one-third of what was realized in 1975, when sugar export revenues peaked at US$577 million. The Dominican Republic still exported about half its sugar to the United States in the late 1980s (but, unlike in the past, not all under the quota system with its preferential prices). The Soviet Union became the second largest purchaser of Dominican sugar, following the signing of a three-year bilateral agreement in 1987.

Coffee, the second leading cash crop, was also subject to varying market conditions in the 1980s. Introduced as early as 1715, coffee continued to be a leading crop among small hillside farmers in the late 1980s; it covered 152,000 hectares throughout various mountain ranges. Coffee farming, like sugar growing, was seasonal, and it entailed a labor-intensive harvest involving as many as 250,000 workers, some of whom were Haitians. The preponderance of small holdings among Dominican coffee farmers, however, caused the coffee industry to be inefficient, and yields fell far below the island's potential. Output of coffee fluctuated with world prices, which reached an eight-year low in 1989. Another problem was the coffee bushes' vulnerability to the hurricanes that periodically ravaged the island.

The Dominican coffee industry faced not only national problems, but also international ones, which resulted mainly from the failure of the International Coffee Organization (ICO) to agree on quotas through its International Coffee Agreement (ICA). As a consequence, the Dominicans' ICA quota dropped several times late in the decade, hitting a low of 425,187 sixty-kilogram bags by 1988. Although Dominicans consumed much of their own coffee, they were increasingly forced to find new foreign markets because of the ICO's difficulties. As was true of many Dominican commodities, middlemen often smuggled coffee into Haiti for re- export overseas. Official coffee exports in 1987 were US$63 million, down from US$86 million in 1985 and US$113 million in 1986.

Cacao, the bean from which cocoa is derived, endured as another principal cash crop, occasionally surpassing coffee as a source of export revenue. The Dominican cocoa industry emerged in the 1880s as a competing peasant crop, when tobacco underwent a steep price decline. Although overshadowed by sugar, cocoa agriculture enjoyed slow, but steady, growth until a period of rapid expansion in the 1970s. In response to higher world prices, the area covered with cacao trees grew from 65,000 hectares in 1971 to 117,000 hectares by 1980. Small farmers cultivated the most cacao, producing some 40,000 tons on approximately 134,000 hectares in 1987. This crop was enough to make the Dominican Republic the largest producer of cacao in the Caribbean. Combined cacao and cocoa exports in 1987 reached US$66 million. Despite the brisk growth in the crop, the Dominican cocoa industry suffered from low yields and from increasing quality-control problems. In addition, three exporters controlled 75 percent of all cocoa, thus limiting competition. The country also forfeited greater foreign-exchange earnings because only a small portion of the crop was processed into cocoa before export.

Tobacco enjoyed a renaissance in the 1960s, with the introduction of new varieties and an increase in prices. Sales revenues peaked in 1978, but they declined considerably in the 1980s because of lower prices, disease, and inadequate marketing. In 1987, 23,000 hectares yielded 23,000 tons of tobacco. Black tobacco of the "dark air-cured and sun-cured" variety represented 88 percent of national production in the late 1980s. Manufactured into cigars for export, black tobacco was the foremost foreign- exchange earner among the various strains of the crop grown in the Dominican Republic.

Numerous companies participated in the export of black tobacco. Sales to Spain, the United States, the Federal Republic of Germany (West Germany), and France totaled US$14 million in 1987. A growing number of cigar companies operated out of the country's burgeoning free zones, registering US$26 million in sales in 1987.

Declining prices and structural changes in the international market for the Dominican Republic's traditional cash crops of sugar, coffee, cocoa, and tobacco forced the government to consider opportunities for nontraditional agricultural exports during the 1980s. This new emphasis on nontraditional exports also coincided with the implementation of the Caribbean Basin Initiative (CBI), which afforded the country reduced-tariff access to the United States market. The main categories of nontraditional exports that the government promoted included ornamental plants, winter vegetables (vegetables not grown in the United States during winter months), citrus, tropical fruits, spices, nuts, and certain types of produce popular among the growing Hispanic and Caribbean populations in the United States. However, new investments in agribusiness during the 1980s were less successful than anticipated, particularly in comparison to the dramatic success of assembly manufacturing and tourism. Nonetheless, officials apparently had succeeded in broadening the options of farmers and investors from a few crops to a diverse range of products. The government spearheaded agricultural diversification through an export promotion agency, the Dominican Center for the Promotion of Exports (Centro Dominicano de Promoci�n de Exportaciones--Cedopex), and through cooperation with a nongovernmental organization, the Joint Agricultural Consultative Committee, which promoted agribusiness investment in the republic. By 1989 some successes had been achieved with citrus and pineapples, but quicker growth in nontraditional agricultural exports was hindered by the slow pace of the CEA's diversification program, which had scheduled portions of the fertile sugar plains for conversion to nontraditional crop production.

Dominican Republic - Food Crops

As part of the national dish of rice and beans, rice was the Dominican Republic's most important food crop in the late 1980s.Rice production expanded significantly in the post-Trujillo era, and by late 1979 the country had achieved self-sufficiency for the first time. Rice production, however, waned in the 1980s, forcing renewed imports. In 1987 about 112,000 hectares yielded 320,000 tons of rice, an amount inadequate to meet national demand, but well above the level of 210,000 tons in 1970.

Declines in production were related to a series of economic factors. Rice subsidies to the urban poor, who enjoyed less than two kilograms of rice a week as part of Inespre's food basket, or canasta popular, were generally at odds with the goal of increased output. The government's land reform measures also may have had a negative impact on rice yields; IAD's rice holdings, which rendered 40 percent of the nation's rice, were noticeably less productive than private rice holdings. In the late 1980s, the government continued to involve itself extensively in the rice industry by supplying irrigation systems to over 50 percent of rice farmers as well as technical support through the Rice Research Center in Juma, near Bonao. The government also moved to increase the efficiency of local distribution in 1987, when it transferred rice marketing operations from Inespre to the Agricultural Bank of the Dominican Republic (Banco Agr�cola de la Rep�blica Dominicana--Bagricola) and then to the private sector.

The other principal grains and cereals consumed in the Dominican Republic included corn (or maize), sorghum, and imported wheat. Corn, native to the island, performed better than many food crops in the 1980s because of the robust growth of the poultry industry, which used 95 percent of the corn crop as animal feed. The strong demand for feed notwithstanding, Inespre's low prices for corn and other distortions in the local market caused by donated food from foreign sources decreased incentives for farmers and reduced output during the late 1970s and the early 1980s. As of 1987, corn covered 28,000 hectares, and it supplied 43,000 tons, an amount far below domestic needs. The cultivation of sorghum, a drought-resistant crop also used as a feed, expanded rapidly in the 1980s because of sorghum's suitability as a rotation crop on winter vegetable farms and as a new crop on newly idle cane fields. An estimated 16,000 hectares yielded 49,000 tons of sorghum in 1987, more than double 1980's output of 23,000 tons. Wheat was another increasingly important cereal because Dominicans were consuming ever-greater quantities of the commodity, donated primarily by the United States and France. As a result, the country's two mills were functioning at full capacity in the late 1980s. The government was reluctant to do something about Dominicans' preference for the heavily subsidized wheat over local cereals for fear of violent protests by poorer consumers.

Other major food crops included starchy staples such as plantains and an assortment of tubers. Dominicans consumed large quantities of plantains, usually fried, because of their abundance, sweet taste, and low cost. An estimated 31,000 hectares of trees produced 251,000 tons of plantain in 1987. Peasants routinely cultivated and consumed root crops, such as cassava, taro, sweet potatoes, and yams because they were cheap and easy to cultivate. Production of these basic food crops did not fare well in the late 1970s and the 1980s because of low government prices and the exodus of population to the cities. Some 17,000 hectares sown with cassava, the most common tuber, produced approximately 98,000 tons of that crop in the late 1980s.

Beans, a dietary staple and the chief source of protein for many Dominicans, were grown throughout the countryside. Although the country was generally self-sufficient in the universally popular red bean, shifts in output created the need to import some beans during the 1980s. Red beans covered 57,000 hectares, yielding 39,000 tons, whereas black beans were grown on only 9,000 hectares, yielding only 4,000 tons. Other varieties generated even smaller harvests.

Dominicans also grew an assortment of fruits, vegetables, spices, and other foods. These included bananas, peanuts, guava, tamarind, passion fruit, soursop, coconut, tomatoes, carrots, lettuce, cabbage, scallions, cilantro, onions, and garlic.

Dominican Republic - Livestock

The raising of livestock, the basis of the economy during colonial times, continued to be a common practice in the 1980s, despite the country's warm climate and hilly interior. The predominant livestock on the island were beef and dairy cattle, chickens, and pigs. The country was essentially self-sufficient in its production of basic meats. Cattle-raising was still the primary livestock activity in the late 1980s, and the Dominican stock exceeded 2 million head, the great majority of which were beef cattle, raised mostly on medium-to-large ranches in the east. The annual output of slaughtered beef surpassed 80,000 tons annually, by the late 1980s, over 10 percent of which was processed by five specially certified slaughterhouses and was exported to the United States. Ranchers also smuggled out much beef to circumvent export duties. The country also contained an undetermined, but dwindling, number of dairy cows. The decline in the dairy cow population was the direct result of years of low government prices for milk. Implemented in an effort to keep milk prices low, this policy dramatically increased milk imports, and it created serious milk shortages. Many private milk pasteurizers consequently closed their businesses in the 1980s. By the late 1980s, only four pasteurizing plants, including one owned by Inespre, processed local milk and reconstituted imported powdered milk.

The poultry industry, in contrast to the dairy industry, enjoyed strong growth in the 1980s. A few large producers supplied the nation with 90,000 tons of broilers a year and with hundreds of millions of eggs. As in other developing countries, the cost of feed continued to play a major role in the pace of the poultry industry's expansion in the 1980s. The pork industry had also rebounded by the mid-1980s, after suffering the virtual eradication of its stock from 1978 to 1982 because of an epidemic of African Swine Fever. Afterward, the Dominican Republic established an increasingly modern and well-organized pork industry. By the late 1980s, however, the national stock exceeded 500,000. This number was well below 1979's peak figure of 750,000, however. The government succeeded in restocking the pig population very rapidly after 1982, but higher feed prices and slack consumer demand for pork, previously a traditional Dominican favorite, in response to high prices had slowed that effort by 1989.

Dominican Republic - Forestry and Fishing

Pine, hardwood, and other tree cover, once ample, covered only 15 percent of the land by 1989. To offset losses caused by the indiscriminate felling of trees and the prevalence of slashand -burn agriculture, the government outlawed commercial tree cutting in 1967. Since then, there had been some limited development of commercial plantation forestry, but the nation continued to import more than US$30 million in wood products each year. Although not so drastic as in Haiti, deforestation and the erosion that it caused posed serious environmental concerns for the country's watersheds into the 1990s and beyond. Reforestation efforts drew funding from a number of international development agencies during the 1980s.

The fishing industry also was underdeveloped. Undercapitalized, it consisted of only small coastal fishermen with modest nonrefrigerated boats, who barely exploited the 1,600 kilometers of coastline. The government did not place much emphasis on the industry and, therefore, provided little financial or other assistance to fishermen.

Dominican Republic - INDUSTRY

Manufacturing, particularly assembly operations in free zones, constituted one of the most dynamic sectors of the Dominican economy in the 1980s. As had been true of mining, the growing role of manufacturing accelerated the industrialization and the diversification processes affecting the island's economy. Manufacturing in 1988 contributed about 17 percent of GDP, employed 8 percent of the labor force, and generated about onethird of exports, although assembly exports did not appear in normal trade data because of their free zone origins. The sector consisted of traditional manufacturing, with large roles for both the public and the private sectors, and free-zone manufacturing, consisting mainly of assembly operations with some agroprocessing as well. Growth in manufacturing during the 1980s centered on the free zones; their projected employment of as many as 180,000 workers by 1991, when compared with a total of only 16,000 workers in 1980, was expected to represent the most dramatic increase in assembly labor in the world during that tenyear period. Manufacturing's export performance was equally dramatic. Manufactured goods went from 11 percent of total exports in 1980 to 31 percent by 1987.

Dominican Republic - Traditional Manufacturing

During the Trujillo era, manufacturing grew more slowly than it did in other Latin American and Caribbean countries because of the dictatorship's disproportionate emphasis on sugar production. In 1968 the Balaguer government introduced the Industrial Incentive Law (Law 299). For the first time, domestic manufacturers received substantial tariff protection from foreign competition. In the same year, the government signalled the beginning of industrial diversification in the post-Trujillo era by establishing the Industrial Development Board to oversee industrial policy. Although these incentives stimulated an array of domestic industries, created jobs, and helped to diversify the country's industrial base, Dominican industries failed to develop a capacity to compete internationally. Although envisioned largely in terms of import substitution, most Dominican industries depended heavily on foreign inputs. In addition, because they were generally capital-intensive, these industries failed to provide adequate employment for a burgeoning population.

Local manufacturing was both inefficient and inequitable. The application of tariff and income tax exemptions became a politicized process whereby benefits accrued to individual firms rather than to specific industries. The Jorge government, which itself manipulated incentives regulations to its political advantage, introduced in 1983 the Democratizing Law 299, purportedly to standardize industrial incentives for all producers.

In the late 1980s, more than 5,000 traditional manufacturing firms existed in the republic. Food-processing activities were dominant, representing over 50 percent of manufacturing activity; followed by chemicals, 12 percent; textiles, 9 percent; and nonmetallic minerals, 6 percent. Some 3 percent of all firms accounted for nearly 50 percent of all industrial output; these firms, however, employed only 23 percent of the manufacturing labor force, indicating the capital-intensive nature of larger companies. By contrast, 85 percent of the smallest firms registered only 30 percent of industrial production, while employing 50 percent of Dominican workers.

The Dominican government generally abstained from involvement in new manufacturing operations, but twenty-five industrial enterprises, part of the Trujillo "legacy," remained in the government's portfolio in the late 1980s. Most of these parastatals were under the control of a state holding company, the Dominican State Enterprises Corporation (Corporaci�n Dominicana de Empresas Estatales--Corde). Initially converted into state-owned enterprises as the "inheritance of the people," Dominican parastatals endured in the late 1980s because of their role in the political patronage system. Corde's holdings were diverse, ranging from a five-man auto parts firm to a 1,600-employee cigarette factory. Although the Balaguer administration considered privatizing some state-owned enterprises to improve its fiscal position, that prospect remained unlikely because of the political value of such firms.

Dominican Republic - Free-Zone Manufacturing

There was no economic process more dynamic in the Dominican Republic during the 1980s than the rapid growth of free zones. Although the Dominican government established the legal framework for free zones in 1955, it was not until 1969 that the Gulf and Western Corporation opened the country's first such zone in La Romana. Free-zone development progressed modestly in the 1970s, but it accelerated rapidly during the 1980s as the result of domestic incentives, such as Free-Zone Law 145 of 1983 and the United States CBI of 1984. Free-Zone Law 145, a special provision of the Industrial Incentive Law, offered very liberal incentives for free-zone investment, including total exemption from import duties, income taxes, and other taxes for up to twenty years. By the close of the decade, the results of free-zone development were dramatically clear. From 1985 to 1989, the number of free zones had more than doubled, from six to fifteen; employment had jumped from 36,000 to nearly 100,000. The number of companies operating in free zones had increased from 146 to more than 220. In 1989 six more free zones were being developed, and three more had been approved. These zones were projected to bring the total to twenty-four by the mid-1990s. Demand nonetheless outpaced growth, forcing some companies to wait as long as a year to acquire new factory space.

The country's free zones varied widely in terms of size, ownership, production methods, and location. The size of free zones ranged from only a few hectares to more than 100 hectares. Private companies operated nine of the country's fifteen free zones in 1989, but only four of those were managed as for-profit ventures. The government administered six zones, including the Puerto Plata free zone, the only mixed public-private venture. Most companies in the free zones, 66 percent in 1989, were from the United States. Dominicans owned 11 percent of the firms, and the remaining enterprises had originated in Puerto Rico, Taiwan, Hong Kong, Panama, the Republic of Korea (South Korea), Canada, Italy, and Liberia. Most free zones hosted an assortment of producers, while a few focused on a limited number of subsectors, such as garments, electronics, or information services. Other free-zone products included footwear, apparel, jewelry, velcro, furniture, aromatics, and pharmaceuticals. Most operations were performed under short-term subcontracting arrangements. The government also afforded free-zone benefits to certain agrobusinesses , dubbed special free zones, which were physically located outside the free zones themselves, thus causing some agro-processing to fall under the free-zone export category. Among the most innovative activities in the free zones were information services, such as data entry, Spanish-English translation, computer software development, and even toll-free telephone services for Spanish-speakers in the United States; all of these services were available because of the island's advanced telecommunications infrastructure. By 1989 nearly every region of the country was home to at least one free zone; the greatest concentration was found in the south and southeast.

Apart from the incentives of Free-Zone Law 145 and other domestic legislation, a growing number of foreign companies chose the Dominican Republic as an investment site because of the twin plant scheme, or 936 scheme, with Puerto Rico under the CBI. The twin-plant concept allowed companies to benefit both from the exemption of United States import duties under the CBI and from income the tax exemptions granted to firms in Puerto Rico under Section 936 of the United States tax code, while also taking advantage of the Dominican Republic's low labor costs. As the Spanish-speaking country closest to Puerto Rico and the most prolific developer of free zones in the region, the Dominican Republic hosted over 50 percent of the seventy twinplant investments that had been recorded by 1989.

The National Council for Free Zones (Consejo Nacional de Zonas Francas--CNZF), within the Secretariat of State for Industry and Commerce, spearheaded free-zone development. A major justification for the development of free zones was the levels of employment that the generally labor-intensive work stimulated. Also, free zones provided hard currency, mostly in the form of wages, rent, utilities, and supplies, for a nation hungry for foreign exchange. By the late 1980s, however, jobs in the free zones were only beginning to make a dent in the country's chronically high unemployment, which had averaged about 25 percent for more than a decade.

Based on the export success of Southeast Asian nations, freezone development had a proven economic value, but it was not without policy trade-offs. Although the strategy provided numerous jobs, the new jobs that it created offered limited opportunity for advancement. Similarly, with the exception of information services and agro-processing, free-zone enterprises entailed limited technology transfer for longer-term development. Free-zone development also forged few economic links with the local economy because of the limited value added by assembly operations. Besides labor and utilities, few local inputs became part of the manufacturing process, mostly because of insufficient local supply, uneven quality, and certain government regulations. The rapid growth of free-zone construction also created some nationwide bottlenecks in cement production, the generation of electricity, and other basic services. Finally, the liberal tax and tariff exemptions extended to free-zone manufacturers reduced the potential revenue base of the government and forced domestic businesses and individuals to assume a greater portion of the tax burden.

Dominican Republic - Mining

Like the economy at large, the mining industry enjoyed extraordinary growth in the 1970s, when the country's major ferronickel and dor� (gold and silver nugget) operations were inaugurated. Mining's contribution to GDP rose from 1.5 percent in 1970 to 5.3 percent by 1980, where it remained in the late 1980s. Although the mining sector employed only about 1 percent of the labor force throughout this period, it became a major foreign-exchange earner, increasing from an insignificant portion of exports in 1970 to as much as 38 percent by 1980, then leveling off at approximately 34 percent in 1987. Nonetheless, mining companies struggled in the 1980s because of low international prices for the island's key minerals--gold, silver, bauxite, and nickel. In the late 1980s, the government strove to tap new resources and to strengthen export diversification by actively seeking foreign investment in mining.

Gold and silver dor�, which occur naturally in the Dominican Republic, played a central role in the rapid emergence of mining. Although the Spanish mined gold on the island as early as the 1520s, gold production in the Dominican Republic was insignificant until 1975, when the private firm Rosario Dominicano opened the Pueblo Viejo mine, the largest open-pit gold mine in the Western Hemisphere. In 1979 the Dominican government, then owner of 46 percent of the shares of Rosario Dominicano, purchased the remaining equity from Rosario Resources, Inc., a New York-based company, thereby creating the largest Dominican-owned company in the country. Rosario's huge mining infrastructure, with an annual capacity of 1.7 million troy ounces of gold and silver, impelled by rapidly increasing international prices for gold, had nearly succeeded in pushing dor� past sugar as the country's leading source of export revenue by 1980. From 1975 to 1980, gold and silver skyrocketed from 0 percent of exports to 27 percent. Declining prices for gold and silver during the 1980s, however, curtailed the extraordinary growth trend of the 1970s, and by 1987 dor� exports represented only 17 percent of total exports (one percentage point above ferronickel exports, and one percentage point below sugar exports). Declining reserves also limited dor� production. Japanese and United States companies actively explored new gold reserves on the island, but gold mining was shifting away from the search for oxide ores, supplies of which were dwindling, toward the more expensive process of exploiting sulphide ores. There were some alluvial gold deposits as well.

Ferronickel also contributed to the mining prosperity of the 1970s. From 1918 to 1956, the United States Geological Survey performed a series of mineral studies in the Dominican Republic. These studies encouraged the Canadian firm Falconbridge to undertake its own nickel testing starting at the end of that period. Falconbridge successfully opened a pilot nickel plant in 1968, and by 1972 the company had begun full-scale ferronickel mining in the town of Bonao. In the late 1980s, the Bonao ferronickel mine was the second largest in the world. Buoyed by high international prices, nickel exports rose from 11 percent of total exports in 1975 to 14 percent by 1979. Although nickel exports, as a percentage of total exports, continued to climb in the 1980s, reaching 16 percent by 1987, lower world prices for nickel and a lengthy dispute between the government and Falconbridge over tax payments hampered output throughout the decade. Unlike gold, nickel had been proven to exist in large reserves in the Dominican Republic, which meant bright prospects for mining.

The Aluminum Company of America (Alcoa) began bauxite mining in the southwest province of Barahona in 1958. Bauxite output peaked in 1974 when Alcoa surface-mined nearly 1.2 million tons; exports totaled as much as US$22 million as late as 1979. As with other minerals, however, the international recession of the early 1980s caused bauxite prices to topple, as world supply outpaced demand. Alcoa closed its Dominican bauxite operations in 1982 and its small limestone mine in 1985. The Barahona mine remained closed until 1987, when the government purchased Alcoa's facilities and recommenced bauxite mining, selling the red ore to Alcoa for processing in Suriname.

The Dominican Republic also produced varying amounts of iron, limestone, copper, gypsum, mercury, salt, sulfur, marble, onyx, travertine, and a variety of industrial minerals, mainly for the construction industry. In the late 1980s, the National Marble Company was a profitable, but outmoded, government monopoly that mined marble, onyx, and travertine for the local construction industry. Corde's Minas de Sal y Yeso extracted salt and gypsum, generally at a loss. Salt mining was primitive, and its product was destined solely for the local market. The private sector mined and exported limestone, some of which went to the United States.

The government increasingly favored greater participation by the private sector in mining, so that the state's resources might be combined with the technology and the capital of foreign firms. Mining's promoters also sought to diversify the economy's export basis and to improve its international credit worthiness. Through Decree 900 of March 1983, the Jorge government further defined and limited the role of government in mining, by providing broader incentives for private involvement. Nonetheless, the state retained exclusive rights to mine gold, gypsum, and marble. United States, Japanese, Australian, and European firms explored Dominican soils after 1987, when the government opened up areas previously closed to foreign investors.

Dominican Republic - Construction

The construction industry had a major effect on the economy during the 1970s and the 1980s, as government-funded public works provided thousands of jobs and improved the physical infrastructure. In 1987 the sector contributed nearly 9 percent of GDP, a relatively high figure for a developing country. Construction activity boomed in the early 1970s, increasing at a rate of 16 percent annually from 1970 to 1975, faster than any other sector during that period, with the exception of mining. Public-works projects such as dams, roads, bridges, hospitals, low-income housing, and schools transformed the national infrastructure during the 1970s. The sector's rapid growth continued in the 1980s, but it was very uneven because of fluctuations in annual government spending. Private-sector construction, particularly of free-zone facilities and hotels, also boosted industry performance.

Construction firms, like many other Dominican businesses, relied heavily on personal contacts. For example, in the late 1980s the government awarded only about 15 percent of its construction contracts through a competitive bidding process. Government authorities, up to and including the president, negotiated or offered the remaining contracts as if they were personal spoils. The Balaguer administration's emphasis on construction in the late 1980s focused primarily on renovations in Santo Domingo, and it included the construction of museums, a lighthouse, and a new suburb, all in preparation for 1992's observance of the five-hundredth anniversary of Columbus's arrival in the New World.

The construction sector generally was self-sufficient; less than one-third of all construction materials was imported. Domestically produced materials included gravel, sand, clay, tiles, cables, piping, metals, paint, and cement. Although the main indicators of construction materials output generally rose in the 1980s, the rapid expansion of activity during the decade caused a serious shortage of cement that slowed the progress of some projects. The Dominican government built cement factories in Santiago and San Pedro de Macor�s in 1977 in joint ventures, with private investors, to complement its major plant in Santo Domingo, but the new capacity quickly became insufficient, and the country was forced to begin importing cement by the mid1980s . By the late 1980s, cement factories were operating at full capacity, a rarity among developing countries such as the Dominican Republic. Besides materials, the industry encompassed ten major construction firms as well as several design and civil engineering companies, which handled all but the most complex projects. The construction sector was a major employer of unskilled labor, which constituted 65 percent of that industry's work force.

Dominican Republic - Energy

The cost and the availability of energy became major impediments to development in the 1970s and the 1980s. An oil importing nation, the Dominican Republic saw its import bill for petroleum multiply tenfold in absolute terms during the 1970s. Although oil prices eased during the 1980s, the country faced a new energy crisis as a result of a critical shortage of electrical-generating capacity. Inadequate supplies of electricity resulted by the late 1980s in frequent power outages, frustrated consumers, and disrupted productive activities.

The country's aggregate consumption of energy was low, even by Latin American standards. For example, Costa Rica consumed more than half again the amount that the Dominican Republic did on a per capita basis in the 1980s. The energy consumed by the nation came from a variety of sources: petroleum and petroleum products (49 percent), wood (26 percent), biomass (20 percent), hydropower (3 percent), and coal (2 percent). The country continued to be dependent on imported crude oil and related petroleum products, and its narrow domestic energy resource base satisfied barely half the nation's energy demand. The potential supply of hydropower, the most promising resource, was estimated at 1,800 megawatts (MW), but less than a quarter of that amount was being tapped in 1989. Wood and charcoal use was constrained by the small size of the country's remaining forests. Biomass, mostly bagasse from sugarcane residue, was getting more use but had limited potential as a fuel. Deposits of lignite (brown coal), were known to exist in the Saman� Peninsula in undetermined amounts, but exploitation of this resource was considered unprofitable in the late 1980s. Nontraditional energy resources, such as geothermal and solar power, were also being considered, but they, too, promised little return on potential investment in the 1980s.

United States, Venezuelan, and Canadian oil companies began prospecting for oil in Dominican soil in the early twentieth century; these efforts met with little success, however. Only small deposits were known to exist at Charco Largo in the 1980s, and the prospect of new oil finds appeared poor. Consequently, the country imported crude oil and certain special petroleum products that could not be refined locally. Mexico and Venezuela, under the San Jos� Accord, met about one-third of the country's oil needs at concessional rates. Under pressure from urban consumers, the government traditionally had subsidized gasoline prices; sudden price increases, like those of 1984 and 1989, often triggered unrest.

The Dominican Electric Company (Corporaci�n Dominicana de Electricidad--CDE), a parastatal that replaced a private company in 1955, operated the country's national electrical system in 1989. The CDE supplied two-thirds of the country's 1,573 MW electrical capacity in 1986. Private and public production--used to power mines, sugar mills, cement factories, other industries, and residences--accounted for the balance. Oil-based thermal plants generated most of the nation's electricity (62 percent). Smaller amounts were produced by gas turbines (14 percent), hydroelectric dams (14 percent), and other sources (10 percent). Residences consumed the most electricity (41 percent), followed by industry (28 percent), the public sector (19 percent), and commercial users (12 percent). Prices ranged from the low subsidized rates afforded households to the much higher tariffs the CDE charged its large commercial customers. Only 38 percent of Dominican homes had electricity in the late 1980s, a low percentage by Latin American standards; for example, 54 percent of Jamaicans had such access.

Generally dilapidated and outdated, the CDE's facilities suffered from inadequate maintenance and inefficient, politicized financial management. For example, approximately one-third of all electricity generated in 1988 was lost because of maintenance problems or unauthorized use. Not surprisingly, by the late 1980s the country was facing a huge deficit in electrical capacity that was substantially hindering economic development. Some areas suffered as many as 500 hours of outages a year, which often caused damage to appliances because of drops in voltage and other irregularities. Because of this unreliable service, many businesses, especially in free zones, ran their own generators. With assistance from the World Bank and the Japanese government, the CDE attempted to improve efficiency by increasing tariffs, upgrading infrastructure, and expanding capacity. The Balaguer administration in the late 1980s considered privatizing portions of the CDE's operations. Nevertheless, demand was expected to outpace supply for years to come.

Dominican Republic - TOURISM

The Dominican tourist industry grew tremendously during the 1970s and the 1980s, and by 1989 it boasted more than 18,000 hotel rooms--more than any other location in the Caribbean. Foreign-exchange earnings from tourism also multiplied dramatically, during the 1980s, from US$100 million in 1980 to US$570 million by 1987, or the equivalent of 80 percent of all merchandise exports. In 1984 tourism replaced sugar as the country's leading foreign-exchange earner, exemplifying the growing diversity of the Dominican economy. The number of tourists visiting the island increased from 278,000 in 1975 to 792,000 in 1985, and in 1987 the number of vacationers surpassed 1 million for the first time. This total surpassed those of traditional resort locations like Bermuda and Barbados, and it made the Dominican Republic the fifth largest earner of tourism dollars in the Caribbean, behind the Bahamas, Puerto Rico, Jamaica, and the United States Virgin Islands.

Government promotion of tourism did not begin in earnest until the passage in 1971 of the Tourist Incentive Law (Law 153). Law 153 created certain "tourist poles" to promote the industry's growth, and, more important, it provided investors in tourism a ten-year tax holiday and an exemption from tariffs on imports not available locally. The law also created a special arm of the central bank to co-finance new investments in the sector. In 1979 the administration of Silvestre Antonio Guzm�n Fern�ndez (1978- 82) elevated the director of the country's tourism development efforts to cabinet level, a further indication of official interest and commitment.

The Dominican Republic offered a number of attractions to tourists, not least among them, its bargain rates and liberal divorce laws. As a consequence of numerous devaluations of the peso in the 1980s, the country was the least expensive Caribbean resort. The republic also benefited from a general upswing in Caribbean tourism, in the 1980s, associated with the strong United States economy. Each year during the decade, the United States accounted for more than fifty percent of the visitors to the Dominican Republic. Other vacationers came mainly from Canada, Italy, Spain, West Germany, and the Scandinavian countries. As the island offered more "all-inclusive" package vacations to visitors, the average tourist expenditure and length of stay also increased, indicating the gradual maturation of the trade. Levels of hotel occupancy generally were very high, between 80 percent and 90 percent. Traditionally, the most popular resorts had been in La Romana, Puerto Plata, and Santo Domingo, but new beach hotels in the southwest, the east, and the north all promised to be major attractions in the future.

Despite its successes, the tourist industry was still relatively young, and it faced a series of problems related to its rapid growth. For example, inadequate supplies of clean water and electricity, combined with slow construction caused by shortages of materials, forced some vacationers to leave early because of unsuitable accommodations. Although workers were drawn by tourism's higher wages and the access that it provided to foreign currencies, the rapid development of the industry ensured that qualified labor continued to be in short supply. Tellingly, the industry's return rate for visitors was low, by Caribbean standards.

Dominican Republic - FOREIGN TRADE

According to official figures, exports in 1987 dipped to US$718 million, a ten-year low. Diminished exports, in combination with the country's largest import bill ever (US$1.5 billion), caused the nation's merchandise trade deficit to reach the unprecedented and precarious level of US$832 million. Traditional exports suffered a steady decline from 1984 to 1987 because of a steep drop in sugar revenues.

This negative data on overall exports, however, masked positive patterns in exports at the sectoral level, as the economy continued to diversify away from sugar. For example, the structure of Dominican exports changed dramatically from 1981 to 1987 as the share of traditional exports (sugar, coffee, cocoa, and tobacco) dropped from 62 percent to 43 percent, while minerals as a percentage of exports went from 28 percent to 34 percent, and nontraditionals jumped from 10 to 23 percent. These data, however, excluded free-zone exports, which technically were not recorded as merchandise trade. Free-zone exports swelled from the equivalent of 10 percent of total exports to 31 percent of total exports from 1981 to 1987, and in 1987 free-zone export revenues surpassed those derived from traditional agricultural exports for the first time.

The novel composition of Dominican exports also caused a redirection of the country's goods and services toward the United States market and those of developed countries in general. The United States share of Dominican exports, after peaking at 83 percent in 1970, fell to 52 percent by 1980, but then leaped to 87 percent by 1987, indicating a somewhat risky dependence on a single export market. Puerto Rico's share of the country's exports, which were included in the United States figures, steadily increased during the 1980s, and it exceeded 7 percent by 1987. Less developed countries received only 3 percent of Dominican exports in 1987; only 2 percent of all foreign sales went to Latin America. The Soviet Union, which first contracted to purchase Dominican sugar in the mid-1980s, accounted for 2 percent of exports, a figure that was expected to increase. European markets, particularly Spain, Switzerland, and Belgium, received the balance. An unknown, but presumably large, amount of exports was smuggled out of the Dominican Republic, especially to Haiti, to circumvent international agreements, exchange controls, and export taxes.

The government supported the diversification of exports through the Dominican Center for Export Promotion (Centro Dominicano de Pronoci�n de Exportaciones--Cedopex). Although established in 1971, Cedopex had a minimal economic role until the 1980s, when the country began to move from import substitution toward export promotion. An important foundation of that policy was the Export Incentive Law of 1979 (Law 69), which afforded duty-free entry of imported inputs for exporters and provided certain foreign-exchange benefits. In the first five years that Cedopex administered Law 69, businesses exported 275 new products as a result of the legislation. This number rose considerably after 1984 with the passage of the CBI, the signing of bilateral textile agreements with the United States, and the designation of a series of new free zones. Cedopex also extended conventional investment promotion services, such as market research, overseas promotion of new products, and investor guidance to government regulations. Despite these advances in export promotion, some economists pointed to the continued use of export taxes and the outright prohibition of certain exports, mainly staple foods, as disincentives to improved export performance.

Dominican imports reached an unprecedented US$1.55 billion in 1987. Even more alarming than the country's unparalleled trade deficit, however, was its inability to reduce import demand even as oil prices fell during the late 1980s. Oil's share of total imports, as high as 61 percent in 1980 after the disruptions of the 1970s, declined to a manageable 24 percent by 1987. Non-oil imports mounted, however, thereby ravaging the country's balance of payments and leaving the nation vulnerable in the event of another oil price increase. In order of importance, other imports included intermediate, consumer, and capital goods. A large percentage of increased imports in the late 1980s was dedicated to public sector projects pursued for both economic and political reasons. The country drew an increasing share of its total imports from developed countries; this figure grew from 62 percent in 1981 to 78 percent in 1987. The United States was the major supplier, providing 55 percent of imports, followed by Japan with 11 percent, and West Germany and Canada with 2 percent each. Developing countries contributed only 22 percent. This consisted primarily of oil imports originating in Venezuela and Mexico.

The government's import policies in the 1980s continued to endorse steep tariff protection for local industry, and only limited import liberalization was achieved. In the late 1980s, the country banned more than 100 imports, mostly agro-industrial products, and some tariffs reached 350 percent. Moreover, successive Dominican governments used import tariffs as a political tool to reward powerful constituents. Excessive public sector imports and exchange-rate subsidies for certain parastatals exacerbated the import crisis in the late 1980s.

The republic's other trade policies consisted of securing markets for traditional and nontraditional exports through bilateral agreements, such as the United States sugar quota agreement, the United States General System of Preferences, the CBI, and the 807 program, as well as international agreements for coffee, cocoa, and other products. For many years, the Dominican Republic unsuccessfully attempted to become a member of the Caribbean Community and Common Market (Caricom) and the Lom� Convention of the European Economic Community. Although the country had achieved observer status in both, full participation continued to be unlikely because Dominican exports competed directly with those of other members.