The Dominican Republic: Stabilization, Structural Reform, and Economic Growth

Occasional Papers, January 29, 2002

Source details

Canonical URL: The Dominican Republic: Stabilization, Structural Reform, and Economic Growth

Paper objective: Summarizes the authorities’ stabilization efforts, how these efforts were subsequently reinforced by certain key structural reforms, and other related developments that help explain the remarkable performance of the Dominican Republic’s economy in the 1990s.
Outcome in the 1990s: The country achieved one of the highest output growth rates in Latin America, combined with low inflation, and a much improved external debt profile.
Historical financing practices: Authorities often resorted to external arrears as a means of financing the external current account deficits of the 1980s.
Debt restructuring: Rescheduling agreements were reached with the international banking community and with the Paris Club of official creditors in the mid-1980s, but they met with limited success until the authorities embarked on their stabilization program of the early 1990s.
Fiscal and monetary interaction: Large and persistent fiscal deficits represented a significant burden for monetary policy.
Financing shift and defaults: Although at the beginning of the decade more than half of the public deficit was financed by foreign loans, episodes of default on external and domestic government debt led to a progressive drying up of these sources of financing.

Stabilization measures in the early 1990s were pivotal in transforming macroeconomic outcomes after limited success of mid-1980s rescheduling efforts.
Structural reforms complemented stabilization, contributing to sustained high output growth and low inflation in the 1990s.
Reliance on external arrears in the 1980s was a recurrent policy tool to finance current account deficits, with long-term consequences for external debt dynamics.
Persistent fiscal deficits undermined monetary policy effectiveness and increased vulnerability when access to foreign financing contracted following defaults.

Stabilization programs can restore access to financing and improve macroeconomic indicators when complemented by structural reforms.
Managing fiscal deficits is critical to reduce the burden on monetary policy and to prevent reliance on arrears or foreign lending that may become unsustainable.
Timely resolution of debt defaults and sustainable restructuring are important to prevent progressive drying up of financing sources.

Subject: Arrears, Economic sectors, External debt, Public investment and public-private partnerships (PPP), Public sector, Revenue administration, Tariffs, Taxes
Keywords: Arrears, Asia and Pacific, Caribbean, Central America, debt, exchange rate depreciation, interest rate differential, OP, productivity growth, public goods, Public sector, State sugar Co, Tariffs

International Monetary Fund — The Dominican Republic: Stabilization, Structural Reform, and Economic Growth (Occasional Paper No 2002/001).