Fernández offer some macro success at the expense of high quality rule
Big obstacles along the way

CAFTA to thunder ahead as Arias' Costa Rica squeezes out a narrow pro-free trade victory

The Dominican Republic (DR) has been undergoing a profound transformation beginning at the end of the last century. With an increasingly prosperous economy, stable political institutions, and a booming tourism industry, it seems that the DR is well prepared to be perceived as one of the most successful modernizing countries in the early years of this century. However, the picture becomes more complicated upon analyzing the country's prevailing social and economic features. Issues ranging from a poor health system, a pattern of ill-treatment of Haitian refugees illegally in the country, energy shortages, and under-performing educational facilities blot its credentials; however, this is not to say that the current administration, headed by Leonel Fernández of the Dominican Liberation Party (PLD), has not fulfilled some of its objectives. Yet while economic indicators are favorable, he is losing popularity because he is being viewed by many as being indifferent to the plight of the poor and small farmers, and too allied with foreign multi-nationals, not to mention botching up his controversial metro project.

President Fernández is considered a White House friend, having stabilized the Dominican Republic's economy by enhancing growth and achieving a reduced unemployment rate. In 2006, according to World Bank estimates, GDP growth in the DR reached a 10.6 percent annual figure while the unemployment figure remained steady at an admittedly high 16% level. Nevertheless, despite this positive macroeconomic record, Fernandez has kept a blind eye on some of the key issues affecting Dominican society as a whole. This includes those who suffer from marked income inequality, with the poorest half of the population receiving less than one-fifth of GNP, while the richest 10 percent enjoys nearly 40 percent of national income. The fact that these concerns have remained well below the horizon of his administration has raised doubts over whether the DR will be successful in sufficiently reforming itself in order to keep up with its process of modernization.

A Strengthening Economy

Considering the relative political stability reigning in the country, Dominican authorities have been successful in attracting investors from abroad, and there is good reason to believe that the DR's economy can be further reformed if the country has responsible leadership combined with a civic society being committed to active citizen participation in its overall process of democratization. Also, its leaders must learn to contain the lamentable degree of corruption that, according to a survey held by Transparency International in 2006, ranks the DR at 64 of the 163 of the countries surveyed.

For most of its post-colonial history, the Dominican economy has been an exporter of sugar, coffee, and tobacco. These agricultural goods provided the backbone of an economy, which in recent years, has prospered from an explosive expansion of tourism, and the growth of free trade zones. Exports remain an important asset for the Dominican economy, with revenues providing $6 billion to the country's GDP. However, the service sector has become the island's most forceful engine of growth in terms of job creation, according to the World Bank, accounting for up to 58 percent of the country's labor force.

The tourist industry has dramatically developed in recent years due to the large-scale investments made by multinational hotels and resorts, that have seen Dominican beaches and other labor-intensive enterprises as being very profitable. The eastern shore of the DR has been one of the main beneficiaries of the boom in the tourist industry. This part of the country has become, for government planners, a Special Economic zone due to the fact that most of the DR's revenue from tourism comes from here. This area offers a great variety of hotels, golf courses, and mega projects like Cap Cana, that has equipped the DR with the largest yacht marina in the Caribbean.

The promotion of the tourist industry is an important element in the country's macro-economic development strategy, making it a main priority for Fernández since he first took office in 1996. The President's first term was successful enough in promoting expansion, to the extent that, according to official statistics issued by the Dominican Central Bank, the GDP increase reached a 7 percent annual rate, one of the highest levels in the hemisphere, and inflation stabilized in the low single digits, making it among the lowest in all of Latin America.

The Have Nots

However, as mentioned before, the country's broader reality, the one that allows notice of its poverty and lack of social services, leaves most Dominicans relatively untouched by an administration whose vision is focused on big corporations engaged in big planning rather than little people. Now, in his second term, which started in 2004, it seems as though Fernández has recollected only limited lessons from the past. While continuing along the path of promoting big projects, he has tended to downplay other issues, such as the dire status of the energy sector, which obstruct the country's economic development. Instead, he has shifted his administration's priorities by zeroing in on building an underground public transportation system in Santo Domingo commonly known as a the metro. The idea of building a mass underground transit system is controversial, primarily because of its cost, but also due to the perception that it is an unnecessary luxury, which will carry with it the near-certainty of massive corruption as well as burdensome foreign debt. It is true that Santo Domingo's population has significantly increased in the past few years, with claims that the metro area now has more than 2 million inhabitants, and that some form of infrastructural development is sorely necessary in order to curtail the unbearable traffic jams. Building a metro might not be the optimal solution.

The controversial Metro

The problem is that the DR cannot afford this luxury if it is going to bear the cost of education and health care budget. The budget for education in the DR is less than 2 percent of the DR's GDP, placing it in the ten countries with the poorest performance and with the least amount of public investment in this sector. The government maintains that it has opened dozens of new schools throughout the country, but this is not to say that the classrooms are adequately equipped, or that the teachers are well paid and even minimally trained, or that most of these recently opened schools will have sufficient funds to sustain even the most meager educational programs in the coming months. Therefore, what the education system needs is a sound reevaluation and the implementation of pressing reforms in well known areas, rather than a cornucopia of newly built schools, which in many instances cannot even be opened, because of a lack of critical funds.

Some admonish Fernández by insisting that he needs to be more coherent in his public policy formulations, and not try to have his administration replicate Tammany Hall in its venality, if he intends to emphatically win the 2008 elections. The president certainly has the right to claim that the Dominican economy, according to the World Bank, grew at a rate of 10 percent in 2006 and that the prevailing unemployment rate continues to ebb, but not if little of this gentile rain falls on the majority of the population, which has not seen substantial improvements in its quality of life for years. Furthermore, discontent towards Fernández also rises from the fact that, since the 2006 legislative elections, the PLD has had a stronghold on Congress, with 93 deputies out of 120 in the lower chamber, which would seem to make the road toward genuine reform less painful and more doable.

Fernández is now focused on getting himself re-elected in 2008. He already triumphed in the PLD primary ballot in May, with 71 percent of the membership's vote, and enjoys the undeniable advantage of being an incumbent; however, this does not mean that Fernández's victory is a slam dunk. This is partly due to the internal fractionalization now being witnessed in his party, as well as the undeniable fact that a large portion of the country's population is gravely discontent with Fernandez, whose approval rating, now in the lower 40s, has significantly sunk in recent months due to the haphazard construction of the metro, which apparently was launched with no prior geological studies and with an initial cost estimate of $470 million that has now spiraled to nearly $700 million.

Local Politics

The runner up in the PLD internal elections, Danilo Medina, is seen as a major cause for the confrontation now taking place in the party, especially because he refused to immediately recognize Fernandez's victory in the PLD primary vote, referring to it as a "victory of the state" over his candidacy. Nevertheless, despite these skirmishes, the elections of 2008 will almost certainly see Fernández as the winner. The problem is that to Fernández's advantage, the other contenders for the 2008 elections are at best relatively weak and inconsistent, with no recognition. This has made the incumbent out to be easily the most formidable of all of the candidates, although that is not saying much.

The second most important party in the Dominican Republic is the Dominican Revolutionary Party (PRD). The PRD's candidate for the 2008 elections is Miguel Vargas Maldonado, a former Secretary for Public Infrastructure during Hipolito Mejía's tainted administration. Founded by Bosch in the 1930s, while he was in exile, the PRD took on the rhetoric of populism and left-leaning social justice advocacy in the 1970s, eventually persuading Bosch to decide to abandon the party and go on to found the PLD in 1973. Somewhat after his exit, José Francisco Peña Gómez became the PRD's leader, a position he held until his death in 1998.

The third most important party in the DR is the Reformist Party (PR), founded in 1966 by the then President Joaquin Balaguer. After Balaguer's death in 2002, the party went through a series of internal tensions, and as a result, lost much of its ideological credibility. From there on, it degenerated from its professed enlightened absolutism, (as promoted by Balaguer), to an ill-formed and mendacious demagoguery that has been reflected in Fernandez's inherited palace guard, particularly during his first term in office.

The PR candidate for the 2008 elections is Amable Aristy Castro, from the affluent province of La Altagracia, which is the DR's most upscale tourist area. Aristy Castro won the PR primary in June with approximately 52% of the vote, in a process that reflected the party's degradation. This was signaled by its membership's general lack of interest in the party's deliberation, and because of the allegations that it was saturated with corruption and fraud. Aristy Castro's main rival during the internal process of the PR was Eduardo Estrella, who was an important collaborator of Balaguer's during his years as president. Estrella voiced his discontent over the PR's internal process, but realizing how difficult reform would prove to be, he decided to depart from the PR, and is now working with various minor parties in forming a 4th which intends to put an end to the overall corruption of the country's three major parties. Many members of the PR have been so disappointed in Aristy Castro's candidacy that they have decided to either join Eduardo Estrella's political alternative, or support Fernandez's candidacy.

Lauding CAFTA

The DR is seen as one of the main signatories to the Central American Free Trade Agreement (CAFTA), a pact that despite its pretensions, fails to classify the DR as an undeveloped country. It is not that the concept of CAFTA is lamentable in itself; rather, the problem with the pact is that under its terms it will be hard for local farmers and domestic enterprises to effectively compete with imported goods coming from more efficient foreign competitors.

According to Joseph Schumpeter, capitalism can be seen as "creative destruction," which in this case means that if an imported product out-competes a domestic one, it likely means that it is superior in quality. However, some of CAFTA's provisions might end up destroying its purpose by creating resentment on the part of many jobless Dominicans against the "evils of American Imperialism." It is likely to propagate distrust and suspicion towards the concept of having a more open Dominican economy that will be vulnerable to external impacts coming from nations whose work forces are better trained, more highly motivated, and with access to more efficient technologies and better credit availabilities.

American exports to the Dominican Republic have increased by 16 percent since the treaty came into effect; however, it should be recalled that most Dominican Republic and Central American exports to the United States have benefited from duty-free treatment as a result of a trade preference program previously ratified by the U.S. Congress under the terms of President Reagan's CBI (Caribbean Basin Initiative), which promoted regional economic development. The latter fact is only a sign that when looking at CAFTA itself, one must look how much it actually has benefited the DR up to now in comparison to the US economy. However, given that the treaty went into effect only recently, with Costa Rican voters narrowly confirming it on October 7, and that some of its provisions are already presently being reevaluated, it's still too soon to refer to the treaty as either a failure or a success.

Conclusion

En route for a third term, Fernandez has yet to push any strong initiatives on behalf of social issues. However, at this point he must prove that in any prospective new term, he will be prepared to adopt a different stance on social issues, one that will successfully carry out a public policy that will deal more aggressively with the broader and more depressing side of Dominican reality.

Folklorically, Dominicans are said to be infected by the notion of inferiority and a lack of confidence in themselves; this is reflected in the often repeated remark that most Dominicans think that there is no possible solution to the country's problems. The process of modernization is at times excruciatingly painful. Although difficult, considering that economic development is well underway, and that the DR enjoys relative internal political calmness, the task may be far from insurmountable. Yet Dominicans must abandon the naïve assumption that one leader can answer all of their questions or resolve all of their grievances. Dominican society, through its civil organizations, media, and religious organizations, must work together so that all points of view and citizen interests are taken into consideration. The coming years will prove decisive to the permanent well being of the Dominican Republic, as it continues on its path to modernity; if successful, its model could serve as an example to other comparable economies in the region.

This analysis was prepared by COHA Research Associate Roberto Mallen