Economic Overview

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Economic Overview
The Central Bank report on the economic performance from January to December 2004 indicates the economy grew 2% during that period. Gross Domestic Product growth for the first three quarters of the year was 1.4%. The country posted a last quarter growth of 3.3%. This is in dramatic contrast with GDP performance in 2003, a year when GDP declined 1.9%.

The country was able to bounce back from a 28.74% inflation at year?s end. Inflation in January 2005 was 0.79%, compared to 9.23% in January 2004. The downtrend on inflation has been consistent since the half year mark, due to the appreciated and stable peso since June 2004.

Central Bank strictly managed monetary policy, anchored by a stable monetary base, is credited for the reversion of inflation. The DR is expected to outperform its 11-13% IMF inflation target in 2005. The DR continues to be constrained by internal factors such as a high domestic and foreign debt, and external pressures such as high petroleum prices.

The issuing of savings certificates has become the main instrument used by the Central Bank and monetary authorities to remove money from circulation, to control inflation and stabilize the exchange rate. Statistics indicate that the amount of financial papers in circulation (zero coupon financial certificates) grew by 10.4% between December 2004 and early February 2005. During this period the Central Bank has issued RD$11.5 billion in certificates at interest rates that vary with the time requirements.
Money in circulation has fallen by RD$3.3 billion pesos during the same period, a 4.2% reduction.

This debt is highly worrisome for a country that had maintained generally low levels of debt. The debt represents nearly 50% of the GDP, the highest level of any of the countries in the region, where none have a debt level of even 40% of GDP. The foreign debt alone has reached US$7.2 billion according to government sources.

In addition, President Leonel Fernandez said in his 27 of February speech before the Congress that his government had inherited an internal debt of RD$25 billion of which it has paid RD$2.4 billion. At an exchange rate of 29:1, this amount represents US$779.3 million.

Aside from this money, the government has taken credits of US$150 million from local commercial banks in order to face up to part of the electricity crisis that was destroying public confidence in the government. The Central Bank, with the approval of the Monetary and Financial Law, is reaching RD$130 billion or US$4.48 billion. This debt has more than doubled with the policies initiated to check the inflation and exchange rates.

Nevertheless, the issuing of savings certificates has been particularly effective in the exchange market where the price of the dollar over the past two months has fluctuated between RD$28.50 and RD$30.00. Central Bank sources are also reporting that commercial banks are lending less money these days, with a reduction of RD$6.6 billion, equal to 4.2% of the credit market. In December, the banks lent RD$157.7 billion and in February 2005, RD$151.08 billion.

According to 2004 Central Bank statistics, in 2004 the best performing sectors were: communications (18.3%), sugar production (6.7%), hotels & restaurants (4.6%), mining (3.7%), and farming (3.5%). The light manufacturing sector showed improvement, moving from a decline of 3.1% in 2003 to growth of 0.7% in 2004, due primarily to the installation of 40 new companies. Communications growth is attributed to the healthy mobile phone market. Despite the effects of Hurricane Jeane in September, the tourism industry quickly bounced back. The Central Bank reports 2,990 hotel rooms were added in 2004, for a country total of 58,932 rooms. Commerce contracted significantly in 2004, going from a 8.2% growth in 2003 to a 0.2% growth in 2004.

Per capita GDP expressed in US dollars is estimated at US$2.10 billion, an increase of 10.2%, sharply contrasting the decline of 24.8% in 2003, when at US$1.9 billion.

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