Election Advisory Series | Dominican Republic

On Sunday 19th May, voters in the Dominican Republic headed to the polls to elect the country’s next president, vice president, 190 deputies, and 32 senators in congress. Before we get to the results, first can you set the scene?

Paul: The Dominican Republic is one of the most exciting countries in the Caribbean to watch and its economy has been one of the central issues of the current election cycle. If you didn’t know, the Dominican Republic has been one of the fastest growing economies in the Western Hemisphere over the past 50 years averaging about five and a half percent GDP growth a year.

Of course, coming out of the Covid-19 pandemic, macroeconomic indicators were in flux but things have seemed to stabilise now. So this is the context we are sitting in right now, we’re looking at, for example. post-pandemic inflation is now within the Central Bank’s targets and internannual inflation stands at 3 percent – just two years ago inflation was hovering around ten percent. 

Last year, the Dominican Republic revised its GDP growth rate downward and ended the year with an estimated growth of 2.4 percent. However, the latest GDP numbers from the country’s Central Bank in February show a 6 percent increase over last February, indicating the country is on track, or exceeding, its target growth rate of 5.1 percent in 2024. 

Another important part of the economy going into this election was foreign direct investment (FDI) which plays a large role in the country and is one of the leading recipients of FDI in the Caribbean and Central America. This is due in large part to the country’s remarkable political and economic stability as well as its membership in the Central America Free Trade Agreement-Dominican Republic (CAFTA-DR), a free trade agreement with the US – the largest single investor in the Dominican Republic. CAFTA-DR provides protections to member state investors such as mechanisms for dispute resolution, which are of course attractive to foreign investors. Some of the most important industries in the Dominican Republic, and the largest recipients of FDI, are tourism and hospitality, construction, mining, telecommunications, and free trade zones.

On the other hand, there is the very serious issue of public debt, which ballooned, understandably, due to government economic interventions during the Covid-19 pandemic. So the President-elect will certainly have to enact some tax reforms to address the current budget deficit, however, consensus over what this reform would look like has proven elusive in the past. I’ll speak more on this late on. 

Now with the scene set, can you provide us with background on the newly elected President Luis Abinader?

Paul: Yes, of course, so as you know Dominican Republic voters headed to the polls, and as expected incumbent president Luis Abinader, a businessman, was re-elected in the first round of voting. He’s the leader of the Modern Revolutionary Party (PRM), a catch-all party formed in 2014 by Abinader. Going into the election, he was on solid footing polling at around 60%, which is about what he captured on Sunday at around 58% of the vote. He’s extremely popular in the country with an approval rating of roughly 70% making him the second most popular president in Latin America. Abinader’s popularity defies two regional political trends: political polarisation and unpopularity of political leaders.

In his acceptance speech, Abinader outlined his desire for constitutional reform – something he tried but failed to achieve in his first term. However, following the recent election, his party and its coalition will be  in control of about 90 percent of the senate seats and 80 percent of the seats in the chamber of deputies, thereby giving Abinader and the PRM a strong mandate to enact constitutional reforms. Both reforms, in my opinion, bode well for the future of the country and its democratic institutions. 

Firstly, Abinader wants to make it more difficult for a future president to change the constitution for self-interest or to remain in power. Abinader recognizes that the Dominican Republic sits in a region – Latin America – with a history of popularly elected presidents using their mandates to re-write election laws in their favour and to remain in power indefinitely. The Dominican Republic itself is no stranger to authoritarianism – former President Rafael Trujillo was in power from 1930 until his assassination in 1961. Abinader, who in his acceptance speech vowed to not sit for re-election ever again, sees this and wants to prevent it as a possibility in the Dominican Republic. 

His other proposed constitutional reform is to strengthen the independence of the country’s Public Ministry, which is the federal body in charge of enforcing federal laws. In particular he wants to add checks and balances to the president’s power to appoint the Attorney General of the Republic, essentially the head prosecutor of the public Ministry. And in my opinion, this is welcome news to anyone looking for a serious independent prosecutor that is able to combat corruption, bribery and fraud in the country, which is a very serious issue in the country at all levels of government.

Also, I think another hopeful sign in his acceptance speech was in spite of the PRM’s stellar showing, Abinader has promised to run a “unity” government and he has already been talking to opposition party leaders in an attempt to reach consensus on decision making and law making. Toward this end, Abinader said in his speech he had already reached out to the other two main presidential candidates Leonel Fernandez and Abel Martinez to outline his desire for these constitutional reforms and gain their buy-in. So I think this goodwill will go a long way for him and is a positive sign of development in the country.

What does the election result mean for foreign investors looking to do business in the Dominican Republic?

Paul: Great question! Well first, the Dominican Republic has a history of political parties staying in power for a long time. Before Abinader and the PRM won the general elections in 2020, the Dominican Liberation Party (PLD) party was in power for 16 years. Now, the PLD party, which has fractured with the establishment of the Force to the People (FP) party, has lost almost all its representation at the federal level. The PRM’s tremendous success in the general and municipal elections this year – growing its share of the vote at all levels of government – could be a sign the PRM are here to stay as a political force in the Dominican Republic.

However, that is good news for the people of the Dominican Republic and foreign investors. All the major parties, the PRM, the PLD and FP, are pro-foreign direct investment and pro-growth parties who are averse to populist politics. None of the major parties are particularly ideologically-driven, so with this in mind I would suggest that Abinader and the PRM are more focused on tangible and practical improvements to the country in a second term, such as becoming a more attractive market for foreign investment. 

Ultimately, the administration’s goal is to reach ”investment grade” with the credit rating agencies. Currently, the country has a BB rating with stable outlook, which is two notches below investment grade.

So in order to improve its investment grade rating, Abinader will have to enact certain fiscal reforms to bring down the country’s budget deficit and its public debt to GDP ratio. For context, the Dominican Republic has one of the lowest tax-to-GDP ratios in the region, at 14.4%. And this is not because the tax rates are particularly low but because the tax base is small. Growing the tax base has been a political football in the past because, ultimately, it will create winners and losers. However, given the PRM’s renewed mandate and the Abinader’s administration’s deft ability to confront and contain both the covid-19 pandemic and the subsequent inflationary shocks, confidence in their ability to enact necessary reforms is high.

Furthermore, Abinader’s re-election is a good sign for anti-corruption efforts in the Dominican Republic. Indeed, he won his first election in 2020 on an anti-corruption platform after the country experienced its largest anti-corruption demonstrations in decades against the former ruling party. His election ended 16 years of rule by the corruption-scandal plagued Democratic Liberation Party (PLD). 

Under Abinader’s government, the country’s corruption fighting office, the Specialized Prosecutor’s Office for the Prosecution of Administrative Corruption (a/k/a PEPCA) have stepped up prosecutions and investigations – particularly into the administration of former President Danilo Medina of the PLD (2012-2020). This has, of course, been met with criticism that PEPCA is politically-motivated, especially from PLD candidates – a charge that is not without merit as PRM candidates have been largely untouched by corruption probes. 

However, despite promising gains in the fight against corruption under Abinader’s government, corruption remains a pervasive issue in the country at all levels of government. It remains to be seen how effective a second term will be at reducing corruption in the country, although his administration has signalled anti-corruption will continue to be a priority of his government. Indeed, if his government’s ultimate goal is to reach investment grade, foreign investors will be looking for additional progress on reducing corruption risks in the Dominican Republic.

We’ll continue to keep a close eye on the Dominican Republic political climate and remain on call for our clients to help them make sense of the environment within the context of their business operations. 

To speak to one of the team for a confidential conversation, please get in touch with one of our experts at info@riskadvisory.com.

Photo by FEDERICO PARRA/AFP via Getty Images