ࡱ> q :bjbjt+t+ -hAAt]Ld88$ d:(\B0dffffff$C7rrrDDDDrdrdDD.!j <vdp{BfEconomic environment Introduction The Dominican Republic is the largest economy in the Central American-Caribbean region; its per capita GDP is some US$2,400 and its population about 9 million. Since its last Review, in 1996, the Dominican economy has experienced one of the fastest rates of growth in the world. This has been accompanied by macroeconomic stability, increased economic openness, including of the foreign trade regime, and a gradual shift towards private sector participation. Enabled by prudent macroeconomic management, high real growth rates were achieved with inflation averaging less than 7% a year, an increase of international reserves, and a relatively stable exchange rate. In line with the global economic downturn, the growth rate dropped sharply, to 2.7%, in 2001 but is expected to pick up again in 2002. Activities that contributed particularly to the high growth rates include construction, commerce, and communications, whereas the share of free-trade zones in GDP has declined, despite their continuing importance for the generation of export earnings. The Dominican Republic's current account balance posted a deficit with a widening trend between 1996 and 2000, mainly caused by an increasing deficit in the merchandise trade balance. The slowdown of economic activity led to a narrowing of the deficit in 2001. The current account deficits have been financed in part by inflows of foreign direct investment. In contrast to merchandise trade, services have shown successive surpluses, largely due to income from the booming tourism sector. Current transfers from Dominicans living abroad have also been rising and contributed to keeping the current account deficit under control. The Dominican Republic's main trading and investment partner is the United States. Per capita income has increased at a real annual average of 4.4% since 1996. This reflects the dampening effect on otherwise high GDP growth of the 1.8% average annual population growth although this has been falling. Although all living standards indicators have similarly improved, about 25% of the Dominican population remains below the poverty line, with resilient pockets of poverty concentrated mainly in rural areas, urban slums, and western border areas. Main Economic Developments Output and employment Over the second half of the 1990s, the Dominican Republic has been one of the world's fastest growing economies, with an average growth rate of 7.6% between 1996 and 2000 (TableI.1). Economic activity was sustained by a boom in private investment spending, while the share of consumption and public expenditure in GDP have remained relatively stable since 1995. Preliminary figures for 2001 indicate a sharp deceleration in GDP growth, to 2.7%, as the boost in demand from a programme of public investment only partly offset the slowdown in tourism and the free-trade zones, and in remittances from family members living abroad. According to Central Bank estimates, Dominican GDP grew by 4.3% in the first quarter of 2002, indicating a continuation of the recovery process initiated in the second quarter of 2001. Table I.1 Basic economic indicators, 1995-01 1995199619971998199920002001I. Gross domestic product (GDP) Current GDP (RDS$ million)162,283183,361214,864241,910278,908321,516359,560 Real GDP (1970 RDS$ million)4,5794,9075,3085,7026,1476,593.0 6,772.3 Real GDP, rate of growth (%)4.77.28.27.47.87.32.7 Nominal GDP (US$ million)11,99413,33515,06815,87317,34719,62921,200 Nominal GDP per capita (US$)1,5711,7071,8861,9422,0742,2942,422 Sectoral breakdown (% of real GDP) Agriculture12.612.812.311.511.411.211.4 Industry32.532.332.933.534.234.233.4 of which: free-trade zones3.73.53.53.53.23.23.0 Services54.954.954.855.054.454.755.4 Breakdown by expenditure (% of current GDP) Total consumption83.985.985.085.683.285.684.8 Private78.880.277.377.575.177.175.8 Public5.15.77.68.08.18.49.0 Gross fixed capital formation19.218.719.523.224.023.723.1 Private11.010.212.516.317.619.317.9 Public8.28.57.16.86.34.45.2 Change in stocks0.30.30.30.30.30.30.3 Exports of goods and services47.546.146.847.046.045.639.1 of which: free-trade zones24.223.323.925.825.024.321.3 Imports of goods and services50.951.051.556.053.555.247.3 of which: free-trade zones16.716.116.017.016.315.613.4II. Fiscal indicators (% of GDP) Revenue15.714.416.215.915.616.916.6 Expenditure14.914.515.315.516.215.016.3 Overall balance0.8-0.10.90.4-0.60.90.3III. Money and prices Consumer price index (% change)12.55.48.34.86.57.78.9 M1 (end of period; % change)....18.74.921.4-10.124.7 M2 (end of period, % change)....23.715.924.013.629.7 Official exchange rate (average of the year, RD$/US$)12.8712.9014.0114.7015.8316.1816.69 Real effective exchange rate (1995 = 100)100102.3107.3106.6105.6110.3116.9 Deposit rate (%, p.a.)14.913.913.417.716.117.715.6 Lending rate (%, p.a.)30.723.721.025.625.126.824.3IV. Memo items Population (million)7.77.88.08.18.38.5.. Gross international reserves (US$ million)528.5512.0555.5658.9881.3818.21,340.8.. Not available. Source: Dominican Central Bank. According to Central Bank statistics, agriculture contributes just over 11% to GDP, but in nominal value terms export earnings from agricultural goods, including their related manufactured products, have decreased significantly since 1996. Due to falling prices and shrinking quantities, traditional agricultural exports (coffee, sugar, tobacco and cacao,) fell to 3.2% of total exports in 2001. The services sector, contributing about 55% to GDP, constitutes the main pillar of the Dominican economy, with tourism being a major generator of foreign exchange. Construction, commerce, and communications have grown particularly fast and have thus contributed to the Dominican Republic's rapid growth since 1996. The share of manufacturing in GDP, despite growth in absolute terms, has been declining, amounting to 16% in 2001. Encouraged by a trade policy regime that grants extensive advantages to enterprises located in free-trade zones, the manufacturing sector continues to be characterized by a dual structure: while the domestically oriented sector concentrates on the processing and packaging of agricultural products, enterprises located in free-trade zones engage mostly in the production of textiles, electronic goods, and jewellery for export markets (see also Chapter IV). Against the background of high GDP growth rates and a rapidly growing labour force, total employment increased by more than 26% between 1996 and 2001 (TableI.2). Employment growth went hand in hand with a strong increase of female labour market participation. However, unemployment fell only slightly during the corresponding period. The authorities estimated that broad unemployment stood at 15.6% in 2001 while open unemployment, which they suggested was a better indicator for international comparisons, stood at 6.5%. While employment shifted away from agriculture and mining, growth was particularly high in activities such as commerce, transport, and communications. Some 175,000 jobs were located in the free-trade zones in 2001, up from 166,000 in 1995. As noted in the Secretariat Report for the Dominican Republic's previous Review, the informal sector is large: Central Bank estimates indicate that it accounts for just over half of total employment. In 2001, 70% or more of total employment was informal in agriculture, construction, and transport and communications. Table I.2 Employment indicators, 1996-01 (Per cent and '000) 199619971998199920002001aRate of unemployment (%)16.716.014.413.813.915.2Total employment2,5242,6522,8892,9793,2003,177 by sectorAgriculture502531494523519474Mining988866Manufacturing466474532519541487Electricity, gas and water131215132529Construction168181200214200210Commerce 500529628651691686Hotels, bars and restaurants121127138143167180Transport and communications169186198218196241Financial services353537386056Public services101101105107134152Other services440465536545652656a Data refer to the first half of 2001. Source: National Labour Force Survey. Trade has an important role in the Dominican Republic's economy. Data provided by the Central Bank show that Dominican merchandise exports amounted to slightly over US$5.3 billion in 2001, whereas merchandise imports reached almost US$8.8 billion. According to the same source, the share of exports of goods and services in GDP (in current U.S. dollars) fell from 54.6% in 1996 to 39.4% in 2001, while the equivalent share of imports decreased from 60.4% to 47.6%. Fiscal policy The share of government spending in GDP increased from 13.3% in 1995 to 14.2% in 2001. While public investment showed a decreasing trend, public consumption has been constantly rising since 1996. The Government's Budget for 2002, approved in December 2001, provides for expenses of RD$74 billion. Between 1995 and 2001, the Dominican Republic posted a fiscal deficit only twice, in 1996 and 1999 (Table I.3). This reflects not only disciplined expenditure but also considerable efforts to boost public revenue. Between 1996 and 2001, particularly swift increases were recorded for income tax revenue, with significant growth also registered for indirect taxes; customs duty revenue also rose annually, but only until 2000. It should be taken into account, however, that quasi-fiscal losses of the Central Bank averaged about 0.39% of GDP during 1995 to 2001. These losses arise from several of the Bank's functions that fall outside the purview of a traditional central bank and include activities like developing and funding tourism projects as well as promoting technology and research. The authorities indicated that the relocation of these activities to other public institutions was under study. The formulation of fiscal policy is mainly under the responsibility of the Ministry of the Presidency. It has been noted in this context that an increase of transparency, especially of the execution and control of government expenditure, is crucial to enhance fiscal credibility and permit a comprehensive assessment of the Government's financial position. The authorities noted that, by law, the budget must be in balance and any deficit should be linked to priority projects financed by foreign loans. A set of laws to reform fiscal revenue, enacted in 2000, led to significantly reduced reliance on customs duties for government income and less distortionary resource allocation. As a result of the reforms, the share of customs duties in total government revenue decreased from more than 26% in 2000 to below 16% in 2001. The authorities noted that reduced fiscal revenue from lower tariffs has been compensated by increased internal taxes (ITBIS and ISC, see also Chapter III(2)(v)). The foreign exchange fee, which the authorities noted was the main charge affecting the final value of imports, should be eliminated with the adoption of the Monetary and Financial Law (section (iii) below). The Customs Reform Law (Law No. 146-00) of 27 December 2000 cut tariff peaks and substantially reduced MFN tariffs. The Tax Reform Law (Law No. 147-00) of 27 December 2000 raised the value-added tax (ITBIS) from 8% to 12% and enlarged its base to a number of services that had previously been subject to specific taxes; in addition, excise taxes on alcoholic beverages and cigarettes were increased and income tax brackets were adjusted (see also Chapter III(2)(v)). In September 2001, the Dominican Government issued a US$500 million international bond in order to expand expenditure for physical and social infrastructure. The bond resources are to be disbursed at the rate of around US$50 million per month in order to control the expansionary impact on the domestic economy. Transport infrastructure projects have so far been among the main beneficiaries of bond-related resources. The authorities indicated that, as at July 2002, US$120million of bond resources had been spent. Table I.3 Government finances, 1996-01 (RD$ million) 199619971998199920002001aRevenue26,48834,766 38,566 43,484 51,27159,856Current revenue26,002 34,181 38,39042,674 47,79156,408 Taxes24,03131,548 36,26040,197 44,205 53,762 Income tax4,9506,5567,7359,50011,12615,839 Indirect taxes (including on imports)11,27115,01417,41016,86117,60926,558 Customs duties6,7988,79510,14012,22113,4569,336 Non-tax and transfers1,971 2,637 2,1302,476 3,586 2,646Capital revenue487585 176810 3,480 3,448Expenditure26,642 32,901 37,48745,165 48,287 58,863Current expenditure14,890 23,545 26,93731,188 36,657 43,419 Personnel (wages and salaries)6,452 10,812 12,75614,206 18,134 21,496 Non-personnel expenditures672 967 1,4521,577 1,869 2,076 Supplies1,841 2,637 2,8903,238 3,497 4,049 Current contributions4,697 7,869 8,1929,917 9,682 12,157 Interest payments1,002 1,065 1,2591,391 2,321 2,990 Internal debt020 153211 577 727 External debt1,002 1,045 1,1051,180 1,744 2,263 Other226 196 389859 1,153 652Capital expenditure11,752 9,355 10,55013,977 11,630 15,444 Machinery and equipment500 487 488805 638 995 Agricultural projects8,209 5,699 4,5446,930 6,718 7,625 Capital contributions2,817 3,047 4,2404,876 3,461 6,196 Other228 122 1,2721,365 813 629Balance-154 1,866 1,079-1,681 2,984 992FinancingGrants123 125 383464 436 416External financing-1,781 -2,208 -1,607-645 -3,456 3,059Domestic financing1,812 218 1451,862 36 -4,466a Preliminary data. Source: Central Bank of the Dominican Republic. Monetary and exchange rate policies The institutional framework for the Dominican Republic's monetary policy is laid out in Article 111 and 112 of the Constitution and the Law Establishing the Central Bank (Law No. 1529) of 9 October 1947, modified by Law No. 6142 of 29 December 1962. Pursuant to Article 111, paragraph 3 of the Constitution, the Monetary Board is the foremost institution for the regulation of the Dominican Republic's monetary and banking system. The Monetary Board is composed of the Governor of the Central Bank, who presides the Board and is designated by the President, the Minister of Finance, the Minister of Industry and Trade, and seven other members equally designated by the President. It has been noted in this context that the effectiveness of the Dominican Republic's monetary policy may be affected by limited autonomy of the Central Bank. According to the authorities, price stability is the key objective of the Central Bank, but other goals are also pursued, including real output growth, low interest rates, and reserve accumulation. In 2001, for example, the Central Bank followed a policy to propitiate low interest rates in order to stimulate growth and to counterbalance lacking international demand. In practice, however, the Central Bank's policy faces a consistency problem of trying to reconcile multiple objectives. Open-market operations and the imposition of credit ceilings are the Central Bank's main policy instruments. Based on an inflation target, the Central bank formulates an annual monetary programme. Growth and inflation targets are made public through Central Bank publications, and it has become customary to announce them during the annual appearance of the Central Bank Governor before the American Chamber of Commerce. After estimating real money demand, a path for the monetary base is formulated and, based on a target for the change in net international reserves, limits are set on the growth of net domestic assets. The annual programme is then recalculated on a quarterly basis, taking into account seasonality factors. Mid-course adjustments are made if it appears that the inflation target may be exceeded. Against the background of high real growth rates, the Central Bank has been successful in keeping inflation rates under control. Between 1996 and 2001, the average increase of the consumer price index was 6.9%. According to preliminary information from the Central Bank, the inflation rate increased to 8.9% in 2001. For the year 2002, the authorities expect an inflation rate of 6.5%. No long-term trend has been evident in the evolution of interest rates since 1996, with average lending rates ranging between 21% and 27% (Table I.1). The spread between deposit and lending rates in the Dominican Republic is considerable; as at May 2002 it was 12%. Factors contributing to high bank spreads include a relatively small domestic market, limited competition, and high minimum reserve requirements. The Dominican Republic has three principal foreign exchange markets: the official, the commercial bank, and the exchange house markets. The authorities noted that the official and commercial rate diverged by only 0.72% between November 2001 and April 2002. Since the latter date, the Central Bank has been setting the official exchange rate on a daily basis, equal to a weighted average of the previous day's commercial rates, which are determined by market forces. Before that date, the Central Bank followed a policy of managed floating, which was characterized by deviations of about 3% between the official and commercial exchange rates. The official market accounts for about 10% to 15% of the total volume of foreign exchange transactions. The Dominican Republic does not maintain controls on foreign exchange transactions. In 1995 banks were authorized to accept deposits and grant loans in foreign currency. As a result, dollar bank deposits had increased, to reach 20% of total deposits in 2001. Capital inflows have contributed to keeping devaluations of the Dominican peso against the U.S. dollar relatively moderate. At of June 2002, the U.S. dollar exchange rate was RD$17.80. The peso's real effective exchange rate has appreciated strongly since 1992, apart from a phase of marked depreciation in the first half of 1998. The cumulative appreciation of the peso's real effective exchange rate since 1990 amounts to 32%. The authorities consider that this trend raises no concerns in view of the liberalization process, structural changes, capital inflows, unification of the exchange rate and possible increases in labour productivity. A draft of the Monetary and Financial Law was sent by the Executive to the Congress in July2002. If the Law is adopted, price stability will be an explicit objective of Dominican monetary policy. The law will also prohibit the Central Bank from imposing surrender requirements on foreign exchange transactions and provides for the establishment of a single exchange market. Until November 2001, earnings from traditional agricultural exports and their related manufactured products were subject to surrender requirements. Currently, no such requirements exist. Purchases of foreign exchange are subject to a fee, currently at 4.75%; since its introduction in January 1991, the fee has varied between 1.75% and 5%. Exchange houses are exempt from the foreign exchange fee, allowing them to offer a more favourable exchange rate. Plans to eliminate the fee in October 2001 were postponed. Revenues from the fee, as well as expenditures paid for out of these resources, are not included in the approved Government Budget as it is collected by the CentralBank. According to the authorities, total revenue from the fee in 2001 amounted to US$318million. The draft Monetary and Financial Law requires a timetable for reducing the fee to be set within three months of congressional approval of the law; it is not explicit on the amount of its reduction. Balance of payments The Dominican Republic's current account has posted a deficit since 1995; it was particularly marked in 2000 when it just exceeded US$1 billion (Table I.4). In 2001, the deficit fell to US$839million, equivalent to 3.9% of GDP. It has been financed largely by current transfers, of which the majority are remittances, and inflow of foreign investment capital. In addition, the Dominican Republic received foreign aid from various bilateral and multilateral donors totalling almost US$690 million between 1995 and 2001. In current U.S. dollars, merchandise imports grew at an average of 9.3% between 1996 and 2001, while the average growth rate for merchandise exports was lower, amounting to 5.7%. National imports grew more rapidly than imports by free-trade zones, whereas national exports fell, even in absolute terms, largely reflecting the declining export performance of the Dominican Republic's traditional export industries. While the merchandise trade deficit showed a widening trend between 1996 and 2000, the balance for trade in services increased its surplus over the same period, mainly due to growing income from tourism. Due to the global economic slowdown and the 11 September events in the United States, tourism income in 2001 dropped for the first time since 1991, to US$2.7billion. The Dominican Republic availed itself successfully of the benefits of a series of comprehensive debt reschedulings and relief in the 1990s. Its stock of public external debt amounted to US$4,137 million in 2001, corresponding to 19.5% of GDP. Creditors comprise multilaterals (about 32% of total external debt), bilaterals (40%), and commercial banks and private suppliers (28%). However, it has been noted that deficiencies remain in the management of public external borrowing with an increasing proportion falling due in the short to medium term at market conditions. The authorities noted that management of the public debt was of growing policy importance, which has led to the establishment of a commission to study it. Table I.4 Balance-of-payments, 1996-01 (US$ million) 199619971998199920002001aI. Current account-212.7 -163.0 -338.4 -429.2 -1,026.5 -838.9 Trade in goods-1,674.2 -1,995.0 -2,616.8 -2,904.4 -3,741.8 -3,451.3 Exports4,052.8 4,613.7 4,980.5 5,136.7 5,736.7 5,332.9 National945.5 1,017.3 880.3 805.2 966.1 794.7 Free-trade zones3,107.3 3,596.4 4,100.2 4,331.5  4,770.6 4,538.2 Imports-5,727.0 -6,608.7 -7,597.3 -8,041.1 -9,478.5 -8,784.2 National-3,580.7 -4,192.0 -4,896.6 -5,206.8 -6,416.0 -5,937.1 Free-trade zones-2,146.3 -2,416.7 -2,700.7 -2,834.3 -3,062.5 -2,847.1 Services1,018.6 1,275.3 1,182.0 1,602.2 1,854.3 1,703.8 Receipts2,140.0 2,446.6 2,501.5 2,850.3  3,227.6 2,998.8 Travel1,780.5 2,099.4 2,141.7 2,483.3  2,860.2 2,689.8 Others359.5 347.2 359.8 367.0 367.4 309.0 Payments-1,121.4 -1,171.3 -1,319.5 -1,248.1 -1,373.3 -1,295.0 Transport-648.8 -678.9 -781.0 -772.3 -828.0 .. Others-472.6 -492.4 -538.5 -475.8 -545.3 .. Investment income-724.8 -795.4 -890.1 -974.8 -1,041.3 -1,118.9 Receipts130.3 140.4 168.2 218.3 299.7 271.2 Central Bank28.8 24.9 26.4 35.3  39.6 38.0 Others101.5 115.5 141.8 183.0 260.1 233.2 Payments-855.1 -935.8 -1,058.3 -1,193.1 -1,341.0 -1,390.1 Interest-844.8 -925.8 -1,039.4 -1,175.3 -1,321.7 .. Others-10.3 -10.0 -18.9 -17.8 -19.3 .. Current transfers (net)1,167.7 1,352.1 1,986.5 1,847.8 1,902.3 2,027.5 Public68.8 63.1 140.5 125.0 112.7 .. Private1,098.9 1,289.0 1,846.0 1,722.8 1,789.6 ..II. Financial account73.8 451.8 690.2 1,072.7 1,596.6 1,722.9 Direct investment96.5 420.6 699.8 1,337.8 952.9 1,198.4 Portfolio investment-7.3 -7.5 -21.3 -436.9 264.5 603.7 Long and medium term debt (net)-7.9 -32.4 -0.2 109.6 184.2 163.3 Public and private short-term debt (net)34.1 37.8 -93.3 147.9 281.2 -72.7 Other investment-41.6 33.3 105.2 -85.7 -86.2 -169.8III. Errors and omissions108.8 -193.6 -339.1 -480.5 -618.1 -370.9IV. Overall balance-30.1 95.2 12.7 163.0 -48.0 513.1V. Financing30.1 -95.2 -12.7 -163.0  48.0 -513.1 Reserve balance (increase -)15.2 -39.5 -98.2 -193.7  69.5 -518.5 Use of IMF credit-59.5 -62.5 27.4 ...... Exceptional financing74.4 6.8 58.1 30.7 -21.5 5.4.. Not available. a Preliminary figures. Source: Dominican Central Bank. Gross international reserves increased strongly to US$1,341 million in 2001, mainly due to the issuance of the US$500 million international bond to step up investment in social and physical infrastructure. In addition to exports from free-trade zones and tourism, remittances, mostly from Dominicans living in the United States, are a crucial source of hard currency for the Dominican Republic. Current private transfers increased to US$1,914 million in 2001. Merchandise Trade and Investment Flows Composition of trade The Dominican Republic's main export products are manufactured goods produced in the free-trade zones, agricultural goods and their related manufactures, and ferro-nickel (Table AI.1). Since the Dominican Republic's last Review in 1996, exports have continued to shift from primary commodities and their related processed products to manufactured goods processed in free-trade zones. Although their contribution to GDP is below 3%, free-trade zones remain crucial for the Dominican Republic's export performance, generating more than 85% of commodity export earnings. Although no disaggregated data were available, based on the number of enterprises established in free-trade zones, their exports appear to be dominated by clothing and electronic products. Imports are dominated by a range of manufactured goods and agricultural and petroleum products (Table AI.2). Agriculture imports are led by bulk commodities, in particular corn and wheat, and dairy products. Direction of trade The Dominican Republic's main export market by far is the United States, which absorbed almost 52% of its "national" merchandise exports in 2000 (Table AI.3). The authorities noted that, including also exports from free-trade zones, about 87% of Dominican exports were destined to the U.S. market in 2001; this implies that about 95% of free-trade zone exports were supplied to that market. The Dominican Republic's trading partners have benefited from a rapidly growing market and a more open foreign trade regime; most have seen their exports to the Dominican Republic rise in recent years (Table AI.4). The United States is by far the Dominican Republic's largest supplier, providing 52% of its imports. As main suppliers of petroleum, Venezuela and Mexico are particularly important on the import side, supplying 10.7% and 5.4% of Dominican imports respectively. The shares of the Dominican Republic's imports by trading partner did not show major changes between 1998 and 2001. Trade under the two free-trade agreements the Dominican Republic has concluded, with the Central American Common Market and with CARICOM, accounts only for a combined share of just over 2% of exports and less than 2% of imports. Foreign direct investment Since the last Review of the Dominican Republic in 1996, foreign investment has continued to play a crucial role in promoting growth and foreign trade. According to Central Bank data, the accumulated inflow of foreign investment capital into the Dominican Republic between 1995 and 2001 amounted to US$4.7 billion. Apart from enterprises located in free-trade zones, foreign investment is concentrated in (percentage of total between parentheses): electricity (30), commerce (20), communications (17) and tourism (22). The main sources of FDI in the Dominican Republic over 1995-01 were: the United States (32), European Union (38) and Canada (12). The Dominican Republic's regime of free-trade zones (FTZ) appears to have strongly encouraged foreign direct investment (Chapters III(3)(iv) and IV(4)(ii)). According to the National Council for Free Trade Zones, of the 512 enterprises operating in Dominican FTZs in 2001, 344 enterprises were owned by foreigners; 262 enterprises came from the United States, 24 from Korea, and 7 from Chinese Taipei. In 2001, total accumulated investment of enterprises located in Dominican FTZs amounted to more than US$1.3 billion. The main investor was the United States, with US$728 million, followed by the Dominican Republic with US$376 million. Production in Dominican FTZs is concentrated in textiles, but other goods such as electronic products and jewellery have increased their share in exports. The enactment of the Foreign Investment Law in 1995 abolished virtually all exceptions to national treatment, while new legislation on telecommunications and electricity opened up these subsectors to foreign capital and private competition. In addition, the Government's privatization policy, initiated by the Public Enterprise Reform Law of 1997, significantly increased the participation of foreign enterprises in sectors such as electricity generation and distribution, mining, and air transport (Chapter III(4)(iii)). Outlook For 2002, the Central Bank expects a GDP growth rate of around 4% and an inflation rate of about 6%. In particular, the timing and pace of recovery in tourism and free-trade zones is crucial to the short-term outlook of the Dominican economy. Available data for the first quarter of 2002 indicate a growth rate of 4.3% over the first quarter of 2001 with particularly high rates for communications, local manufacturing, and construction.  Services are defined here as including the following subsectors: commerce; hotels, bars and restaurants; transport; communications; finance; real estate; public administration; and other services.  Banco Central de la Repblica Dominicana (2002a), Mercado de Trabajo 2001, Santo Domingo.  IMF (2001), p. 7.  IMF (2001), p. 8.  Dominican Central Bank, press release of 6 January 2002.  The draft law is in the Central Bank's online information. Available at: http://www.bancentral.gov.do/.  IMF (2001), p. 27.  The discussion in this and the following section reflects trade data provided by the Dominican authorities in the context of this Review rather than on statistics from the UN COMTRADE database, as is the practice in most Secretariat's reports for Trade Policy Reviews. For the Dominican Republic, the latter contains information only up to 1997. Furthermore, the description of the Dominican Republic's trade flows focuses on "national" exports and imports, as no detailed breakdown for free-trade zone trade was available, either by product or by trading partner.  According to the information provided by the Central Bank, only labour costs are included for the calculation of the free-trade zones' value-added. Thus, the actual contribution of free-trade zones to GDP, as well as GDP itself, are likely to be higher than recorded.  The analysis is based on values for 2000 because the destination is declared as "unknown" for a large share of exports in 2001.  The FTA with CARICOM does not govern trade with Haiti, which joined CARICOM only after negotiations between the Dominican Republic and CARICOM's other members had already begun.  Consejo Nacional de Zonas Francas de Exportacin (2002). WT/TPR/S/105 Trade Policy Review Page  PAGE 10 Dominican Republic WT/TPR/S/105 Page  PAGE 5 Page I. 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