Annual data2008(a)Historical averages (%)2004-08Population (m)9.5Population growth1.6GDP (US$ m; market exchange rate)46,105(b)Real GDP growth6.9GDP (US$ m; purchasing power parity)96,413Real domestic demand growth9.4GDP per head (US$; market exchange rate)4,874Inflation14.8GDP per head (US$; purchasing power parity)10,191Current-account balance (% of GDP)-3.0Exchange rate (av) Ps:US$34.62(b)FDI inflows (% of GDP)4.4(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: The president, Leonel Fernandez, won re-election in May 2008 because of increased stability and growth owing to beneficial external conditions and improved fiscal and monetary policy. Much of this reversed in 2008, however, as the US entered recession and the administration overspent on elections and subsidies. Policy will now focus on fiscal consolidation, acquiring financing and managing monetary stimulus. An IMF stand-by arrangement, which expired in January 2008, has been replaced by an economic monitoring programme. Although it will bring opportunities, DR-CAFTA, in place since March 2007, will continue to expose institutional weaknesses and pose 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 around 3% in 2008 as nickel prices dropped and production halted. Free-zone earnings rose slightly, whereas imports expanded by 18.4% as private consumption (and prices) were robust in the year. As a result, the Dominican Republic posted a trade deficit of US$9.1bn.

Major exports 2008% of totalMajor imports 2008% of totalFree-trade zones65.4Fuels26.4Ferro nickel7.1Free-trade zones15.6Sugar&derivatives1.7Consumer goods24.0Cocoa&derivatives1.5Raw materials20.7    Leading markets 2007% of totalLeading suppliers 2007% of totalUS67.2US45.1Belgium3.8Venezuela8.1Finland3.4Colombia6.4UK2.7Mexico5.7