Will Inflation Spoil the Dominican Republic’s Success?

“The best is yet to come”: these six words are frequently heard by the President of the Dominican Republic, Luis Abinader, who enjoys one of the highest approval ratings in the region at 70%. But as Abinader’s term nears the halfway point, that optimistic outlook will be tested as the Dominican Republic suffers from region-leading inflation amid rising global prices. Time will tell if Abinader can usher in the new era of growth and prosperity it promises.

The Dominican Republic has already experienced robust growth over the past 25 years, seeing its economy grow an average of 6.1% per year, according to the World Bank. The Dominican economy contracted 6.7% in 2020 but rebounded with 12.3% growth in 2021. And the longer-term picture remains positive: in July 2020, the Organization for Cooperation and Economic Development (OECD) ranked the Dominican Republic as the fastest-growing economy since 2010 in Latin America and the Caribbean.

There is also room for improvement. The OECD has identified possible reforms to the country’s development model, such as the expansion of agribusiness. Given recent U.S. interest in relocating supply chains closer to home and the Dominican Republic’s strategic location, the country has an opportunity to harness interest in a center potential logistics near the American continent. Abinader has already implemented a new customs law to improve the regulatory framework and create efficiencies in a country that was already showing record collection figures under the current administration.

Growth is expected to continue, driven by increased trade and customs revenues, the recovery of tourism and investor confidence. And new interest in nearshoring after disruptions to global supply chains caused by the pandemic could make the Dominican Republic an attractive location for U.S. investment, given its proximity. Already, the country received a record $1.4 billion in foreign direct investment from the United States in 2021, an increase of 87% from 2020 (or 45% from 2019), figures show. shared by ProDominicana.

Under Abinader’s leadership, the Dominican Republic has led the way in regional trade integration. Developed in collaboration with outgoing Costa Rican President Carlos Alvarado Quesada and Panamanian Laurentino Cortizo, the Alliance for Development in Democracy aims to make the Dominican Republic more integrated into international trade by promoting exports and attracting more investment strangers. The initiative was welcomed by the White House ahead of the Summit of the Americas in June 2022.

Today, the Dominican economic miracle is still alive, thanks to a still booming tourism. Abinader inherited a robust tourism sector and has taken steps to further strengthen this component of the economy. The country has become a top tourist destination favored by celebrities such as the Clintons, Kim Kardashian and other celebrities who choose the country for work and entertainment. Golf tourism is growing as hotels, especially in Punta Cana, host high-level international events. The Dominican Republic is also a fast-growing film destination, helped by tax incentives over the past decade.

The government has contracted for a large convention center in Santo Domingo. The Dominican Republic also attracts more budget-conscious tourists looking for all-inclusive vacations. But the war in Ukraine presents a problem in bringing tourism levels back to their pre-pandemic highs: there has been a marked drop in the flow of tourism from Russia and Ukraine, which together accounted for 10% of visitors from the Dominican Republic as recently as January. 2022.

Inflationary clouds on the horizon

This optimistic vision can only materialize with measures aimed at containing inflation. A February 2022 report by the Central American Monetary Council noted that the Dominican Republic’s 9% inflation topped all other countries in its class, including Nicaragua (7.8%), El Salvador (6 .7%), Honduras (6.4%), Costa Rica (4.9%), Guatemala (3.0%) and Panama (2.7). This inflation is directly linked to the high prices of raw materials, such as oil and gas, generated by the slow post-pandemic recovery of the supply chain and exacerbated by the conflict between Russia and Ukraine.

As pandemic restrictions ease, inflation rears its ugly head, representing another kind of contagion.

Inflation was already a problem before Vladimir Putin’s war, but the conflict poses additional obstacles to economic progress, linked to tourism but also in the form of high oil and commodity prices.

Abinader won strong approval for emphasizing anti-corruption measures, but now is the time to get to work and stop blaming previous administrations for ongoing problems. This is the way to ensure that the best is, indeed, yet to come.

Vicente-Romero is a Washington, DC-based political strategist, consultant, and lecturer at Columbia University’s School of Professional Studies.

Keywords: Dominican Republic, economic growth, Luis Abinader, Tourism

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The opinions expressed in this article do not necessarily reflect those of Americas Quarterly or its editors.

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