Caribbean & Central America - August 2020

Luis Abinader and the Partido Revolucionario Moderno (PRM) broke the 16-year stranglehold on power that the Partido de la Liberación Dominicana (PLD) held in the Dominican Republic (DR) in the 5 July general election. Now the victor has to face up to a plethora of problems, including how to revive an economy reliant on tourism during the coronavirus (Covid-19) pandemic.

Abinader will take the reins on 16 August after benefiting from a rejection of corruption and impunity and a fragmented PLD to win the election in the first round. However, President-elect Abinader inherits the problem of the pandemic response, which looks set to put a previously stellar economy, which averaged 6.1% year-on-year growth in the preceding five years, into reverse. The latest forecast by the United Nations Economic Commission for Latin America & the Caribbean (Eclac) expects the DR’s economy to contract by 5.3% in 2020.

A trained economist, Abinader has the qualifications to oversee an economic recovery, but several factors count against him. The DR is heavily reliant on international tourism to drive the economy: tourism generates around 8% of GDP and provides 300,000 direct jobs and twice as many indirect jobs. The tourism sector reopened for business in mid-May with protocols in place. Hotel occupancy rates were restricted to 30% in July, rising to 50% in August, with the aim of reaching 75% in December. However, travellers are unlikely to come if the virus continues to rage around the world, or if the DR can’t control the number of local infections. National governments can do little to control the global situation, but Abinader could implement testing programmes and track and trace systems to monitor outbreaks and boost confidence in the DR’s response.

During the electoral campaign Abinader spoke of economic measures such as economic incentives for the tourism sector, which could include tax breaks or fiscal stimulus. Eduardo Sanz Lovatón, Abinader’s campaign director, also recognised the need for strict sanitation protocols at the country’s airports to prevent the spread of the virus. David Collado, a former mayor of the Distrito Nacional (2016-2020), which encompasses the capital city, Santo Domingo, will serve as tourism minister when the new government takes over, and he has already spoken about collaboration with the private sector. Other possible measures raised by Abinader’s campaign team include incentives for small- and medium-sized enterprises (SMEs), and public-private partnerships for advancing infrastructure projects. However, these programmes will likely run up against fiscal restraints (see sidebar). All of this adds to the economic headache for Abinader, who may turn to the International Monetary Fund (IMF) for access to a credit line to address the Covid-19 emergency. A tax reform could also be in the offing; indeed, it could be a precondition of an IMF deal given that tax revenue, as a percentage of GDP, stands at just 13%.

Key to attracting foreign investment is the need to take action on corruption which emerged as a major electoral issue. Abinader has already promised to present various measures in his first 100 days in office. The task will be complicated by the demands of supporters who may expect to enjoy the fruits of power in the same way as the PLD bestowed favour on wide-ranging patronage networks. Anti-corruption measures will be part of a wider drive to provide some fresh ideas and respond to the demands of the DR’s growing middle class. All in all, these are challenging circumstances for a new president who will have to shape the country’s institutions in his own image after 16 years of opposition rule. Many voters have high hopes for the new government; it could be tricky for Abinader to satisfy them while dealing with the continued fallout from the pandemic.

• Rising deficit

In a statement released in May on the DR, international ratings agency Fitch Ratings said it expects the general government deficit (NFPS) to rise to 7.1% of GDP in 2020 due to the drop in tax revenues and the adoption of measures to combat the pandemic and support economic recovery. The government projected a central government deficit of 2.5% of GDP for 2020. Fitch also projects a 2% of GDP tax revenue decline - domestic tax revenues fell 12.7% year-on-year in March, exacerbating the constraint of low overall government revenues; they were 14.4% of GDP in 2019.