LA ROMANA, Dominican Republic -- President Leonel Fernandez Reyna, accompanied by high-level members of the Dominican government, held a policy dialogue here Saturday with Inter-American Development Bank President Luis Alberto Moreno and his team. World Bank and International Monetary Fund officials also participated in the discussions, which took place in Casa de Campo.
The purpose of the meeting was to analyse economic progress in the Dominican Republic, as well as priorities in the economic policy agenda, the development of infrastructure to improve the country’s competitiveness, and its potential for developing bio-fuels.
Economic Policy Trends
At the opening, President Fernandez stated that, given that the Dominican Republic had attained economic stability and high growth, the country now had to focus on deepening its integration in the global economy. He added: “in order to participate fully in the global economy, we need to diversify our output and our exports to new markets in such a way as to avoid contagion from recessions in the economies of some of our trading partners.”
In turn, the IDB recognized the Dominican government’s success in sustaining a high level of growth, low inflation and a stable exchange rate for a third consecutive year.
The IDB pointed out that due to changes in the international environment related to a possibile downturn in the U.S. economy and higher oil prices, it was necessary to redouble efforts to consolidate the progress already made. The IDB emphasized that, in facing a less favorable international environment, it was essential for the Dominican Republic to maintain a prudent fiscal policy.
President Moreno said: “The macroeconomic results are impressive. Compared with the economic situation in 2004, we can speak of a Dominican economic miracle.” However, Moreno noted that “given the international environment, we must remain alert and active, and redouble our efforts to consolidate the achievements made.”
The Domincan Republic’s Central Bank presented its recapitalization strategy to reduce the quasi-fiscal deficit. In this regard, participants agreed that the plan puts to rest a thorny issue and allows for further progress on the path to macroeconomic consolidation.
The meeting also discussed the pressures Dominincan businesses encounter from strong competition in traditional export sectors. To face this competition successfully, the Dominican Republic must move forward in carrying out its competitiveness strategy. However, it is important to consider the fact that the use of tax exemptions to promote competitiveness in both traditional and non-traditional sectors carries a high cost for Dominican society and the rest of the national economy.
The IDB specifically recognized that the Dominican government’s National Plan for Systemic Competitiveness provides a solid basis for promoting greater business productivity, but noted that the tax incentives contained in the plan should be carefully evaluated and justified.
Infrastructure and Competitiveness
The dialogue also addressed the challenges of modernizing the Dominican Republic’s infrastructure to improve productivity and competitiveness. Participants also analysed the challenges, priorities and alternatives for improving the country’s legal, institutional and regulatory framework, as well as the crucial issue of how to attract greater private investment in urban transportation, highways, ports and airports.
During the discussion on concessions, emphasis was placed on the importance of the design and proper administration of contracts for future concessions, such as VIADOM. This would avoid the creation of contingent liabilities, unanticipated debts due to the failure of the parties involved to comply with the contracts.
President Moreno announced that the IDB would support investment loans in the area of electricity distribution to improve the sector’s efficiency. He also stated that the Bank would provide loans to support the maintenance of the country’s road network and the expansion of other infrastructure that would boost the economy’s competitiveness and improve living conditions for the Dominican people.
The potential for biofuels
In light of the rising price of fossil fuels, participants also discussed the Dominican Republic’s potential to produce viable biofuels economically. The discussion centered on ethanol, and analysed the various implications of developing this potential. There was intense dialogue on issues such as: whether ethanol production should be export-oriented or targeted for domestic consumption; the production scale at the level of large or small plants; and the redistributive effects that this new production could have on family income and on the generation of new jobs.
President Moreno said that, given rising petroleum prices, it is imperative to explore commercial options for producing ethanol and other biofuels. In addition, development of this industry could generate new employment opportunities for Dominicans.
The IDB president also hailed the Dominican Republic's efforts to foster energy savings in the face of high oil prices and to promote the use of alternative energy sources such as the country’s first investments in wind-powered electricity.
At the end of the meeting President Moreno said: “Today, the Dominican Republic can look to the future with optimism. However, we should not be complacent about the achievements to date. We need to continue working toward a path that will allow the country once again to create solid competitive opportunities, which will give it greater advantages in trade, and at the same time open up opportunities for all Dominicans. We should not rest on our laurels. We must continue to work with determination and dedication to reach the goals that President Fernandez’s administration has proposed.”
Although higher economic growth has led to a reduction in poverty, greater efforts are required to define public policies for the benefit of the poor.
President Fernandez concluded: “I am pleased that we all agree that our economy has already overcome the challenges that we confronted in 2004. We now face new challenges. In this dialogue we have looked at the present and the future with our eyes wide open, and we can congratulate ourselves on having identified the alternatives available for the Dominican Republic to become the land of opportunities, the land where our dreams can become reality.”