Incumbent president Leonel Fernández is the clear favourite to win next year’s election, but his prospects will suffer if a US downturn and higher oil prices hit the economy. Monica Campbell reports.

Ribbon-cutting ceremonies. Cash hand-outs. Land titles for small farmers. Suddenly, it is election time in the Dominican Republic. Not unlike the neighbouring US, political jockeying and rallies are off to an early start in the Caribbean nation ahead of the May 2008 presidential election. A strong economy will work in favour of the incumbent, Leonel Fernández. But that does not mean his opponents will not stress what still ails the country, namely poverty, power cuts and corruption.

First, it is clear that Mr Fernández, who was elected to four-year terms in 1996 and 2004, is the candidate to beat. During his first term, the economy enjoyed growth at an impressive 7%, one of the highest growth rates in Latin America at the time. In his second term, Mr Fernández has managed to keep the economy going strong. He has ably renegotiated debt agreements with international lenders. Prudent policies have kept inflation and exchange rates in check. The current-account deficit is also at a manageable level.

In all, a growth rate of about 7.5% is expected this year, after a near 11% expansion in 2006. Next year is also looking robust, with most economists expecting growth to top 5%. Consumer spending and investment are fuelling the economy, and so are the billions of dollars in remittances sent by the tens of thousands of Dominicans living in the US.

“The bets are on Fernández winning a third term,” says Ramon Tejada, a political analyst in Santo Domingo. The country is at peace, Mr Tejada explains, and Mr Fernández’s priority has been for it to stay that way. The president also emphasises a stable economy. “Many people here accept the Fernández government,” says Mr Tejada.

Still, Mr Fernández is anxious to shore up his popularity. In August, after trips to Venezuela and Mexico, he went straight back to the stump. New public works, including aqueducts, were inaugurated. More than 200 small farmers received land titles this summer. However, some economic clouds are looming. Rocky economic times in the US – the country’s main trading partner, accountable for some 75% of export earnings – may take away some of Mr Fernández’s lustre. And so may higher oil prices if they begin to create an economic crunch.

Regulatory concerns

There are also worries that the country’s financial system is poorly supervised, which is never good considering that the government’s poor handling of several collapsed banks is what sparked a massive financial crisis in 2003-04.

Yet for now, the Fernández government and its supporters (there are splits) in the ruling Dominican Liberation Party (PLD) will herald the upbeat growth forecasts as clear signals that the country has rebounded from the 2003-04 crisis.

“Fernández has made economic recovery a priority,” says Pablo Linares, head of the Dominican Association of Foreign Investment Businesses. “He has sold the idea that the Dominican Republic is no longer a country of farmers, but of skilled industrial workers, the type that can take on high-end work for the Intels and Microsofts of this world.”

Indeed, Mr Fernández will also be eager to tout any new investment and trade opportunities under the Dominican Republic-Central American Free Trade Agreement (DR-Cafta), which took effect on March 1, 2007. In August, US trade officials said export requirements would be eased for textiles entering the US under DR-Cafta. The changes may help ease concerns held by Dominican textile firms, which have lost their competitive footing owing to China’s entry into the World Trade Organization and the country’s bigger share of the US import market. Overall, the Dominican Republic’s exports to the US have not increased notably in recent years because of more competition from Asia.

Meanwhile, Mr Fernández is anxious to shore up more international support. Relations with Venezuela are becoming cosier. Mr Fernández returned from a recent visit to Caracas praising the Petrocaribe accord and an offer by Venezuela’s president, Hugo Chávez, to build a natural gas plant in the Dominican Republic for processing gas for local use or for export to other parts of the Caribbean. Mr Fernández sees the sense in tighter ties with Venezuela, which is willing to offer its Latin America and the Caribbean counterparts oil prices that beat what they will find on the global market.

Relations with Haiti are also gradually improving after years of bitterness, particularly over the exploitation of Haitian workers in the Dominican Republic. Meanwhile, the next administration is expected to continue pushing for trade pacts with other countries in an attempt to make the Dominican Republic less dependent on the US. This year, a pact was sealed to promote trade with Belize, and a free-trade agreement between the Dominican Republic and the EU will take effect in 2008.

“The country is enjoying a good deal of stability right now,” says Mr Linares. “Inflation is steady and so is the foreign exchange rate. The fundamentals are in place to convince foreign companies that this is a good place to invest.” In 2008, marking the first full year of DR-Cafta, Mr Linares expects foreign direct investment to top $1.5bn.

Most of the fresh capital will head toward telecoms and tourism and come from the US, Canada and Mexico. Investors also remain bullish on the country’s free-trade zone industry. It largely concentrates on medical, tobacco and pharmaceutical production and accounts for more than 75% of total exports. Some concern arose when figures showed that investment at the free-trade zones slipped in 2006. The drop in exports (about 5%) was mostly explained by a strengthening of the Dominican peso against the dollar. However, the free-trade zones are expected to rebound as the DR-Cafta pact takes hold.

Tourism and its influence on the property market are looking up. The number of international visitors has fully recovered since the steep falls following the September 2001 terrorist attacks in the US. Property developments, with many related to tourism, are now blossoming and range from golf courses and marinas to luxury resorts targeting US and European travellers. Today, some $1.5bn is invested in local property developments, according to local property trade associations. That figure is expected to double within three years.

Mr Fernández may win some kudos if he manages to upgrade the island’s ailing telecoms system. Later this year, the government plans to accept tenders for a project to expand broadband into more than 300 towns in the rural and isolated areas. Mr Fernández is also investing in roads (always a popular pre-election tactic). In April, he inaugurated a new corridor that hugs a key beach strip (a project largely funded by the airport tax that foreigners pay). Also, a costly metro project is in the works for the capital, Santo Domingo.

As the 2008 election nears, Mr Fernández’s political rivals will point out what work remains to be done. Miguel Vargas, the candidate of the opposition and left-leaning Dominican Revolutionary Party (PRD), argues that DR-Cafta is leaving smaller businesses behind and unable to compete against multinational heavyweights. Opponents also stress a rise in crime in the past three years, which is explained by drug trafficking, easy access to guns and idleness.

“A strong economy does not solve everything,” says Juan Bolivar, a long-time political analyst in Santo Domingo and a co-founder of Participación Ciudadana, a civic watchdog group. “There is still plenty of frustration about poverty and inequality. The possibility of wanting a new leader, a breath of fresh air, is still there. Plus, you also have people questioning whether a third term for Mr Fernández is an abuse of power.”

Electric shocks

One sore point that all candidates agree on is infrastructure and, specifically, electricity. Blackouts, which became stubbornly common when the 2003-04 recession sapped the funds need to keep generators going, are still frequent. Mr Fernández believes that the first step toward solving this problem is through hydroelectric plants, given the country’s heavy rains.

Congress also passed a law that criminalises electricity theft, with up to three years in prison for lawbreakers. Government studies show that about 50% of Dominicans do not pay for electricity. But government critics say that alternative energy sources and stiffer laws are not all that is needed. Corruption and mismanagement within generating companies must also be tackled, along with poor service.

There can be no doubt that as campaigning continues, Mr Fernández will be frustrated by slow progress on his reform agenda. And this despite the PLD’s majority in Congress. On the president’s wish-list are reforms to modernise the tax system and more movement toward austere economic policies that please the International Monetary Fund (a stand-by agreement will be up for renewal in January 2008). The government finance minister, Vicente Bengoa, also favours dollarisation (not just for the Dominican Republic but for all of Central America).

Yet with opposition lawmakers anxious to support their own interest groups as the 2008 poll nears, Mr Fernández will be hard pressed to see bold changes come about before the election. He may have to wait for his third time at the helm.


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