Dominican Republic GROWTH AND STRUCTURE OF THE ECONOMY
Sugarcane fields
Courtesy Inter-American Foundation
Loading rail cars with sugarcane
Courtesy Mark Salyers
Only three decades after their arrival on Hispaniola
(La Isla
Española) in 1492, Spanish mercantilists largely abandoned
the
island in favor of the gold and silver fortunes of Mexico
and
Peru
(see Dominican Republic - The First Colony
, ch. 1). 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 Gaviño (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 Joaquín 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 (see Glossary)
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 (see Glossary)
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$1 billion in damage.
In the early 1980s, oil prices jumped again,
international
recession stifled the local economy, sugar prices hit a
forty-
year low, and unprecedentedly high interest rates on
foreign
loans spiraled the economy into a cycle of
balance-of-payments
deficits and growing external debt. Because economic
growth
averaged slightly above 1 percent per annum during the
first half
of the decade, per capita income declined. Another
devastating
blow was dealt in the 1980s by reduced United States sugar
quotas, in response to the lobbying efforts of domestic
producers, which served to cut the volume of Dominican
sugar
exports to the United States by 70 percent between 1981
and 1987.
The unstable economic situation prompted the
administration of
Salvador Jorge Blanco (1982-86) to enter into a series of
negotiations with the International Monetary Fund
(IMF--see Glossary)
and to begin to restructure government economic
policies. In 1983 the Jorge government signed a three-year
Extended Fund Facility with the IMF that called for lower
fiscal
deficits, tighter credit policies, and other austerity
measures.
This paved the way for the first in a series of
rescheduling
agreements with foreign creditors. Although the
reschedulings
slowed the pace of repayment, the higher consumer prices
that
resulted from the agreements sparked food riots. The
administration consequently suspended the agreements. In
1985 the
Jorge government signed a one-year IMF Standby Agreement
that
included more austerity measures and the floating of the
Dominican Republic peso (RD$; for value of the
peso--see Glossary)
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
(see Dominican Republic - Political Developments since 1978
, ch. 4).
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 (CBI--see Appendix B).
Data as of December 1989
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