Latin Trade: Dominican Republic: treasure of the Caribbean Sea

The Island Nation Focuses on New Investment Strategy

The Dominican Republic, located in the heart of the Caribbean Sea, is a treasure of color and radiance that illuminates the Antilles Archipelago. Here, 48,000 square km of mountains, coasts and cities blend to create a lush and generous land that has much to offer both vacationers and business executives.

The country's many seaports and growing number of airports are the best example of the Dominican Republic's thriving tourism and commercial economy. For instance, Las Americas International Airport easily accommodates the bustling traffic of tourists, foreigners and local travelers who arrive daily.

The globalization of world economies means that the Dominican Republic will move away from being a country whose principal exports are traditional agricultural goods, such as sugar, coffee, tobacco and cacao, and will focus on developing the services sector. In addition to tourism and telecommunications, the Dominican Republic is positioning itself to become a major player in the outsourcing industry in Latin America.

With more than 59,300 hotel rooms located throughout the country and a wide variety of competitive lodging options, including luxurious "all-inclusive" hotel chains, the Dominican Republic is well equipped when it comes to accommodations for visitors. Travelers can choose hotels that best fit their needs, from a simple small hotel to the beautiful beaches of the five-star resorts in the popular tourist destination located on the north and east coasts of the country with facilities for water sports.

In the field of telecommunications, the Dominican Republic has made great technological advances, placing it at the forefront of the industry in Latin America. This huge market is dominated by four large international corporations: Verizon, Orange, Centennial and Tricom. This industry has experienced significant growth in the past year.

Verizon International, originally known as Compania Dominicana de Telefonos (CODETEL), is one of the top companies in the telecommunications sector and has been doing business in the Dominican Republic for 75 years. The president of the company, Jorge Ivan Ramirez, says that the firm, which last May inaugurated a new $55 million building in Santo Domingo, has confidence in the country. "For this reason, we work so that each day we help to take another step forward in its progress, because the growth of the Dominican Republic in every aspect is also our goal," said Ramirez.

Major highways and easily accessible national transportation have facilitated the development of internal tourism. However, the government, led by President Leonel Fernandez, is determined to attract investors to develop eco-tourism and adventure tourism. For those people interested in mountain climbing, Pico Duarte, the tallest mountain in the Antilles, offers quite a challenge.

INVESTMENTS AND GROWTH

Despite difficult times under the previous government, the Dominican Republic has been able to attract US$1.6 billion in foreign investment over the past two years, especially in the areas of communication, energy and mining, finance, commerce and industry, tourism and free zones.

These investments were led by businesses in the United States, Chile, Mexico, Brazil, France, Italy, Colombia, Canada, and Spain, and on a smaller scale, by Switzerland, Panama, the Virgin Islands, and England.

FROM THE CARIBBEAN BASIN INITIATIVE TO A NEW FREE TRADE AGREEMENT

In the 1980s, the Dominican Republic took advantage of the Caribbean Basin Initiative launched by U.S. President Ronald Regan by substantially decreasing unemployment and adding more than 200,000 jobs with the growth of textile businesses in the free zones.

The Dominican Republic is again betting on progress, aligning itself with the DR-CAFTA free trade effort. Signing of the DR-CAFTA guarantees the country favored nation status with U.S. and Central American trade markets while at the same time strengthening its ties with the United States, which receives 80% of Dominican exports and is the main trading partner of the country.

The Fernandez administration always has been dedicated to bettering the country's future and was determined to attract state-of-the-art technology investments. This dedication resulted in the development of the Cybernetic Park (Parque Cibernetico) at the end of the Fernandez administration's first term in 2000, and an aggressive campaign to attract investors.

Companies who specialize in technology services have opened up businesses in the park, which lies east of the city of Santo Domingo. Caribbean Custom Mold, whose parent company is Florida Custom Mold, specializes in prototype-to-production molds and injection molding. The company manufactures plastic parts for everything from routers to scuba diving equipment and much more. Another company doing business in the park is Interdom Inc., a Dominican company headquartered in Florida, which specializes in call/contact centers, serving the hotel industry, insurance and much more.

HILTON SANTO DOMINGO Experts at Making Business a Pleasure

The new Hilton Santo Domingo is the latest edition to the Hilton Caribbean family and is promising to be the lead business and conference hotel in the city as well as home to the largest luxury casino in Santo Domingo, the Majestic Casino operated by the Spanish company Cirsa. The 21-floor tower style hotel boasts floor to ceiling windows in all of its 228-oceanfront guestrooms, including 32 suites, showcasing spectacular views of the Caribbean Sea.

Equipped with all the regular amenities of a vacation destination hotel, the Hilton Santo Domingo stands apart from its competitors because of the many luxury corporate services and state of the art facilities that it extends to its business travelers.

In order to ensure that doing business away from home is as enjoyable as possible, the hotel has designated 5 executive floors at the top of the hotel with panoramic views of the Caribbean Sea and luxury amenities for the guests that occupy them. One luxurious amenity truly unique to the Hilton Santo Domingo is the inclusion of a Hilton-blue fish in each room on the executive floors, giving rise to the gimmick that "guest who stay on the executive floors never sleep alone". Additionally, guests staying in these rooms will have access to the 20th floor executive lounge equipped with two pc stations with HSIA, two flat screen TV's, WiFi and a tranquil saltwater aquarium 50 cubic meters in size. Guests will also enjoy breakfast, cocktails and hors d'oeuvres as a courtesy and personalized concierge service.

Another exclusive feature of the Hilton Santo Domingo is its 4,644 sq. ft. state of the art Hilton Meetings complex equipped with 2 boardrooms, 5 flexible meeting rooms and a fully equipped business center, with 4 PC stations, high-speed internet access and WiFi. Whether you are holding a conference for 1,000 or an intimate meeting of 8 these facilities equipped with automatic ceiling screens, electronic keys, safety deposit boxes, individual climate control, mini-refrigerators, spectacular views of the Caribbean Sea and more are the ideal luxury choice for meeting organizers.

Eating is also a pleasure at the Hilton Santo Domingo with a choice of 2 restaurants including the Sol y Sombra Bar Restaurant where the traditional Hilton Caribbean Breakfast is served. Also 3 bars complete the entertainment & dining alternatives of this new property.

For reservations, contact: reservations.santodomingo@hilton.com or call 1-877-GO HILTON or visit the website: www.hiltoncaribbean.com/santodomingo

THE DOMINICAN REPUBLIC BACK IN BUSINESS Consolidating economic growth and stability

By Manuel Jimenez

Leonel Fernandez, president of the Dominican Republic, approaches the end of his first governing year amidst an agenda of continuing economic reforms that have already resulted in greater confidence both in the internal affairs of the country and in the international arena--most notably due to the stabilization of macroeconomic variables and for his guidance of the economy on the road to fiscal discipline.

In August 2004, on the brink of assuming the presidency for a second time, Fernandez found the economy worrying. External public debt had increased from US$3.6 billion in August 2000 to $7.2 billion in August 2004. Accumulated inflation stood at 57%, the currency exchange rate was unstable, and the unemployment rate reached almost 17%.

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The sliding exchange rate established by predecessor Hipolito Mejia's administration took the value of the Dominican peso against the dollar from 16 to 1 in the year 2000 to more then 50 to 1 by mid-2004. The result was a disorderly environment, with sharp increases in prices for basic goods and services, a severe energy crisis, the collapse of three of the principal banks in the Dominican Republic, due to distortions that peaked in that time period, and high levels of corruption.

The strategy of Fernandez's administration centers on fiscal discipline and in re-establishing confidence in the economy. Already, the government has obtained the appreciation of the Dominican peso due to the reduction in the dollar's prime rate, and has been sustained until recently in a range of 27 to 29 points.

Against the framework of this strategy, one of the first objectives of the Fernandez government was to re-establish relations with the International Monetary Fund (IMF), which had been interrupted on two consecutive occasions during the previous administration when it failed to comply with essential goals. This move paved the way for re-programming of the external debt and the re-establishment of trust and international credit.

ADJUSTMENT AND COMPENSATION

The agreement with the IMF forced the adoption of certain measures for economic adjustments, which included fiscal reforms to lower the elevated deficit in the public sector. Among the measures adopted by the Dominican government, it is worth noting the increase in Transference of Goods and Services (ITBIS) tax from 12% to 16%; the application of a tax on advertising, and the increase of the exchange commission, a legal responsibility which applies to imports. Public spending was cut, and a government salary cap was implemented. Also, the Liquid Natural Gas (LNP) subsidy, a heavy budgetary burden for the state, was eliminated for the commercial and industrial sectors, and fuel prices were adjusted.

However, these actions did not have enough impact to ensure drastic price reductions as expected, in spite of the slide of the dollar rate against the peso. The government adopted additional compensatory measures, such as re-enforcing certain social policies and generating social assistance programs. For example, "Comer is Primero" (To Eat is First) guarantees a percentage of people with limited resources access to basic needs. A school breakfast program was expanded, and a propane gas subsidy for home use and public transportation was retained.

Another measure that has had great impact is the revival of the electricity sector with a financial recuperation plan directed at increasing energy sources. This plan was carried out with assistance from the World Bank. Also, the economy ministry applied itself to reconciling debt between different agents of the sector.

The administrator of the Dominican Corporation of State Electrical Companies, Radhames Segura, said that the government supports the installation of two carbon mineral plants, made in the United States with a capacity of 600 megawatts in each, to stabilize electrical service and reduce consumer costs.

TRANSFORMATION OF ECONOMIC VARIABLES AND AGREEMENT WITH THE FUND

During an event with the Council of the Americas, the technical secretary and economic adviser of the Dominican Republic president, Temistocles Montas and Julio Ortega, illustrated the active process of transforming economic variables. Taking as a reference numbers handed down from the previous administration, both public officials laid out an optimistic picture, showing the reduction of the Public Sector Consolidated Deficit from 7.3% to 6.8%, and the doubling of the real gross domestic product from 1.0% to 3.5% in 2005.

Also, they pointed to a reduction of the annual inflation rate, which is expected to go from 45% to 9%, a difference of 36%. The central bank's interest rate has been dramatically reduced, and all backlogs on external debt service, which had reached $230 million, have been eliminated. An important factor was the reduction of capital flight, from $2.204 billion to 2.019 billion.

The new numbers also illustrate the restructuring of the financial sector, with the objective of crystallizing the agreement with the IMF with measures such as new fiscal reforms and a financing strategy; laws to reform the government's financial administration; strengthening the autonomy of the fiscal administration and the supervision of the financial system, among others. This includes new measures to re-enforce the supervision and control of private banks.

With this package, the Caribbean country's government met the quantitative goals established by the stand-by agreement signed in January 2005 with the IMF, effectively allowing growth of the gross domestic product at 3.3% in the October-December trimester in 2004 and at 4% in the January-March trimester of 2005, according to official figures.

GROWTH AND EXPECTATIONS

In March 2005, a six-month fiscal surplus was registered equal to 0.9% of the annual gross domestic product, in contrast to the 0.6% deficit previously seen. The appreciation of the exchange rate in March of this year in relation to August 2004 was of 32%, which has increased optimistic expectations: In the most recent version of the letter of intent with the IMF, new goals were established for economic growth for the rest of the year, from 2.5% to 3.5%, and the inflation rate is expected to drop from 13% to 9%.

In accordance with its agreement with international risk managers, and especially after the restructuring of its debt with the Paris Club, the Dominican Republic was able to work again with international bondholders and private banks. As a result, the country has breathing room on its external debt service of almost $1 billion during the current year and part of 2006.

On several occasions, the economic authorities have emphasized the fact that the government is bent on stimulating sustained economic growth as a way to reduce poverty. Tourism is one of the most important industries for the economy, growing 9.4% in the first trimester of the year. Also worth noting is the telecommunications industry, which has grown 19.7% in this period.

The Dominican Republic, nestled in the heart of the Caribbean and occupying two-thirds of the island of Santo Domingo, is one of the area's dominant tourist destinations. While it has a large number of lodging choices, it still has virgin areas that could be used for ecological and adventure tourism. In the traditional tourist points of interest to the north and south of the country, surrounded by beautiful beaches, the hotel chains compete in the "all inclusive" system, which has seen considerable influx of tourists for the greater part of the year.

In the main cities, such as the capital, Santo Domingo, and in Santiago, there are numerous cultural attractions and festivals. Major highways, many of which were built or improved during the last Fernandez administration as an incentive to internal tourism, make travel accessible.

In other areas of the economy, entrepreneurial associations report that commercial activities are "vigorous," with higher sales and competitive prices. The Dominican Federation of Retailers and the Dominican Association of Store Importers confirmed the cited rates in the Central Bank's quarterly report, which ascertains that commercial activity grew 11.6%.

Between March and April, the private sector saw turnover of DR $1,000 million (US$35.7 million). The industrial sector grew 5.9%, exports were up by 2.45%, and farming grew 3.7% in spite of Mother Nature's challenges.

Eddy Martinez, director of the Export and Investment Center, announced a new export strategy based on the President's vision of a country with a more modern productive base, oriented toward innovation, capacity and employment in the emerging information technology sector. The aim is to penetrate new markets in the United States, the European Union and Asia with the export of non-traditional and high-tech products.

He set a goal of attracting $5 billion in foreign investment over a four-year term, at the rate of $1.25 million per year. All of this would be accomplished by installing modern infrastructure in the telecommunications sector and training a large segment of the population in English, enabling them to contact companies that can invest in the Dominican Republic in the area of technology, such as robotics and microelectronics. The Cybernetic Park, located near the international airport of the Americas, east of Santo Domingo, will be relaunched.

Fernandez has focused special attention on strengthening and improving education, initiating education reform, while also establishing agreements with U.S. and Europeans universities to facilitate scholarships for Dominican students seeking bachelor's, master's and doctorate degrees. To this extent, agreements have been formalized with the University of Illinois in Chicago and the Stevens Institute in New Jersey.

FREE TRADE: CHALLENGES AND OPPORTUNITIES

Due to its proximity, the United States is the Dominican Republic's principal commerce partner. About 80% of Dominican exports go to U.S. markets, under the Caribbean Basin Initiative provisions of preferential access. The Dominican Republic is part of DR-CAFTA (the free trade agreement between the United States, Central America and the Dominican Republic).

Under President Fernandez's leadership, all productive sectors, the congress and political parties have begun intense consultation to generate the internal conditions needed to place the country in a competitive position, adopting measures of fiscal equality and helping reduce production costs. The government is sponsoring fiscal reforms that would eliminate blocks in the productive sector, as well as reduce the cost of electricity with new plants that have less-expensive operating costs. The president of the senate, Andres Bautista, from the opposing Revolutionary Dominican Party (PRD), affirmed that once the productive apparatus is adjusted, the congress will approve DR-CAFTA as soon as possible.

PRESIDENCY OF THE DOMINICAN REPUBLIC Press Office Tel: 809-695-8135 www.presidencia.gov.do

FEDERAL RESERVE BANK www.banreservas.com.do

CENTRAL BANK www.bancentral.gov.do

DEPARTMENT OF INTERNAL REVENUE www.dgii.gov.do

DEPARTMENT OF CUSTOMS www.dga.gov.do

SECRETARY OF TRADE AND COMMERCE www.seic.gov.do