Dominican Republic

The
Economic Freedom
Network

Dominican Republic

			Total Government Expenditures
Economic Freedom Rating			As a Percent of GDP

Part 1: The Economic Freedom Ratings for the Components and Various Area and
Summary Indexes: 1975, 1980, 1985, 1990 and 1995.
(The numbers in parentheses indicate the actual values for the components.)

Components of Economic Freedom	1975		1980		1985		1990		1995
I. Money and Inflation	1.9		5.2		3.3		0.6		2.6
(a) Annual Money Growth (last 5 yrs.)	3	(16.6)	6	(10.6)	3	(17.4)	1	(38.2)	3	(17.3)
(b) Inflation Variablity (last 5 yrs.)	3	(6.8)	5	(4.7)	2	(13.1)	1	(16.7)	5	(4.1)
(c) Ownership of Foreign Currency	0		0		0		0		0
(d) Maint. of Bank Account Abroad	0		10		10		0		0

II. Government Operation	8.0		8.0		8.0		5.6		5.9
(a) Gov't Consump. (% of Total Consump.)	10	(8.2)	10	(9.0)	10	(8.1)	10	(6.9)	10	(9.0)
(b) Government Enterprises	6		6		6		6		6
(c) Price Controls	-		-		-		4		6
(d) Entry Into Business	-		-		-		-		5.0
(e) Legal System	-		-		-		-		0.0
(f) Avoidance of Neg. Interest Rates	-		-		-		0		8

III. Takings	3.2		4.9		4.5		4.9		9.1
(a) Transfers and Subsidies (% of GDP)	8	(2.5)	9	(1.6)	8	(2.5)	9	(1.5)	9	(1.4)
(b) Marginal Tax Rates (Top Rate)	0	(73)	0	(73)	0	(73.1)	0	(73)	9	(25)
(c) Conscription	0		10		10		10		10

IV. International Sector	1.8		1.5		3.3		2.2		3.1
(a) Taxes on International Trade (Avg.)	0	(16.1)	1	(9.2)	4	(6.5)	3	(7.8)	1	(12.2)
(b) Black Market Exchange Rates (Prem.)	3	(28)	2	(37)	4	(14)	1	(66)	7	(2)
(c) Size of Trade Sector (% of GDP)	3	(28.0)	1	(24.1)	3	(28.5)	3	(31.2)	2	(27.8)
(d) Capital Transactions with Foreigners	2		2		2		2		2

Economic Freedom Rating	3.3		4.5		4.5		3.6		5.6
Ranking of Country	72		37		39		84		52

Part 2: Recent Economic Indicators:
Population 1996:	8.1		Real Per Capita GDP			:	1996=	$3,460
(in millions)			(in 1995 U.S. dollars)
Annual Rate of Change (1985-96):	2.1%			Avg. Growth Rate:			1980-90=	-1.0%
							1990-96=	0.9%

Economic Indicators:*	1988	1989	1990	1991	1992	1993	1994	1995	1996
Change in Real GDP: Aggregate	1.6	4.1	-5.8	1.0	8.0	3.0	4.3	4.8	7.3
: Per Capita	-0.5	2.0	-7.7	-1.4	5.5	0.0	2.2	2.6	5.0
Inflation Rate (CPI)	48.4	34.6	79.9	7.9	5.2	2.8	14.3	4.2	4.0
Change in Money Supply: (M1)	51.3	25.9	40.5	27.4	26.0	16.6	-3.9	20.3	25.3
: (M2)	51.4	28.9	38.8	40.9	32.2	22.8	6.3	18.9	20.1
Investment/GDP Ratio	39.0	28.0	21.9	20.3	20.3	22.0	22.7	24.2	23.2
Size of Trade Sector (% of GDP)	34.4	33.7	31.2	26.9	26.1	25.3	25.8	27.8	-
Total Gov't Exp./GDP Ratio	18.9	16.6	13.7	12.6	14.2	16.4	17.5	14.6	14.9
Central Government Budget
Deficit (-) or Surplus (+)
As a Percent of GDP	-0.7	0.7	1.0	1.5	1.0	-0.6	-2.1	0.3	0.2
Unemployment Rate	19.1	18.9	21.0	19.6	20.3	19.9	16.0	15.8	16.7

* The figures in this table are in percent form.

After years of monetary instability, regulatory restrictions, discriminatory taxes and economic stagnation, the Dominican Republic has taken some modest steps toward economic freedom in the 1990s. The economic freedom rating of this country rose from 3.6 in 1990 to 5.6 in 1995. During the same period, its ranking jumped from 84th to 52nd.

The primary reasons for the improvement of the 1990s were:

increased monetary and price stability (note the sharp reduction in the growth rate of the money supply between 1990 and 1995 and the accompanying lower and more stable rate of inflation);
relaxation of both interest rate and exchange rate controls; and
a reduction in tax rates—the top marginal rate was cut from 73% in 1990 to 25% in 1995.

Much more needs to be done. Regulatory restrictions limiting entry into business should be relaxed. Lower tariffs and liberalization of trade is badly needed. (Note that the size of the trade sector is much smaller than would be expected for a country of this size and location.) Citizens should be permitted to maintain foreign currency bank accounts and institutional changes designed to reinforce and add credibility to the recent moves toward monetary and price stability would also be helpful. The major weakness of this economy, however, is its highly discretionary and often ambiguous legal structure. Moves toward greater transparency and more clearly defined rule of law would do a great deal to promote both economic freedom and progress.

Perhaps the climate for such changes is improving. The modest moves toward economic freedom during the 1990s were accompanied by improved economic performance. In contrast with the economic decline of the 1980s, real GDP has grown at a robust 5.5% during the last five years.

info@fraserinstitute.ca

You can contact us at the above email address for any comments or information requests. Please report any dead links or technical problems.

Last Modified: Wednesday, October 20, 1999.