Annual data2007(a)Historical averages (%)2003-07Population (m)9.3Population growth1.7GDP (US$ m; market exchange rate)41,013(b)Real GDP growth5.8GDP (US$ m; purchasing power parity)89,649Real domestic demand growth6.0GDP per head (US$; market exchange rate)4,394Inflation18.1GDP per head (US$; purchasing power parity)9,605Current-account balance (% of GDP)0.0Exchange rate (av) Ps:US$33.26(b)FDI inflows (% of GDP)3.7(a) Economist Intelligence Unit estimates. (b) Actual.

Background: From independence in 1844 to 1961, the Dominican Republic was dominated by caudillos (“strongmen”), of whom Rafael Leonidas Trujillo (1930-61) was the most powerful and influential. After a period of internal conflict and a semi-democratic regime run by Joaquin Balaguer, the Dominican Republic established a functioning democracy in 1978. In the mid-1980s the country opted for a more open development strategy centred on free-trade zones (FTZs), tourism and remittances. Notwithstanding periodic financial crises, the strategy has delivered economic growth, but social development has been disappointing because public spending on education and healthcare is low.

Political structure: The Dominican Republic is a representative democracy with a US-style Congress and presidency. The president has executive power, appoints a cabinet and holds office for four years, with re-election possible. Legislative power rests with a bicameral Congress, with both houses directly elected for a period of four years: the Senate (the upper house) has 32 members, one for each province and one for the federal district; the Chamber of Deputies (the lower house) has 178 members. The judicial system is composed of local justices, a 15-member Supreme Court and an Electoral Court.

Policy issues: Increased stability and growth in 2004-07 owing to beneficial external conditions and improved fiscal and monetary policy underwent a sharp reversal in 2008, as the US entered recession and the Fernandez administration overspent on elections and subsidies. Policy will focus on crisis management in the short term, delaying progress on fiscal consolidation and strengthening the economy. An IMF stand-by arrangement, which expired in January 2008, has been replaced by a Post-Programme Monitoring Agreement. Although it will bring opportunities, DR-CAFTA, in place since March 2007, will expose institutional weaknesses and competitiveness shortcomings, posing adjustment costs for SMEs.

Taxation: The highest income tax rate is currently 25%; a July 2007 tax reform reduced the rate from 30%. The base of the main value-added tax (VAT) was expanded and its rate increased from 12% to 16%. A 1.5% tax on corporate gross revenue was temporarily reintroduced.

Foreign trade: Export earnings declined by an estimated 7.7% in 2008 as nickel prices drop and production halts. Free-zone earnings declined slightly, whereas imports are estimated to have expanded by 16% amid very high oil prices and robust private consumption in the early part of the year. As a result, the Dominican Republic posted a trade deficit of US$9.2bn.

Major exports 2007% of totalMajor imports 2007% of totalFree-trade zones63.2Fuels23.7Ferro nickel15.3Consumer goods25.8Sugar&derivatives1.8Raw materials18.9Cocoa&derivatives1.3Free-trade zones18.4    Leading markets 2007% of totalLeading suppliers 2007% of totalUS67.2US45.1Belgium3.8Venezuela8.1Finland3.4Colombia6.4UK2.7Mexico5.7