Dominican Republic: High Hopes for Abinader

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BY JOACHIM BAMRUD

As Luis Abinader starts his second four-year term as president of the Dominican Republic on August 16, 2024 there are high hopes for further reforms aimed at making the country even more attractive to business.

The Dominican Republic, Latin America’s seventh-largest economy, is expected to post the region’s highest economic growth the next five years, according to a Latinvex analysis of projections from the International Monetary Fund (IMF). Its average GDP increase in the 2024-28 period will likely be 5.1 percent.

Abinader, who turned 57 last month, keeps a hectic agenda, traveling across the country often seven days a week. Often, he can be seen sporting a chachabana (the Dominican version of the formal men’s shirt guayabera) at an inauguration far away from capital Santo Domingo in the morning, then wearing a suit as he receives important guests at the presidential palace in the afternoon. The presidential helicopter has been used significantly more under Abinader than his predecessors.

Abinader’s first period was marked by major reforms welcomed by investors, including slashing red tape, improving customs and logistics and aggressively boosting the key tourism sector.

Under his “Zero Bureaucracy” initiative, Abinader has slashed red tape across several areas. The time to register a company has declined from 16 days to 1.3 days, a permit for a “non-complex” construction project has plunged from 206 days to 60 days, a permit for a “complex” construction project has plunged from 206 days to 120 days and health registry for food, drinks and medicine has dropped from 114 to 19 days.

Thanks to a proactive strategy by Abinader and his tourism minister David Collado, the Dominican Republic last year set an all-time record of 10.3 million visitors, a 43.9% jump from 2022, while receipts from tourism reached $9.8 billion, an increase of 16.1% from 2022.

Customs services have also improved significantly thanks to Abinader’s policies and the well-respected Customs chief Eduardo Sanz Lovatón.

Meanwhile, under Abinader, the attorney general’s office gained strong independence and started a series of high-profile probes that led to charges against corrupt officials, mostly linked to former president Danilo Medina.

The Dominican Republic led the way in reducing corruption in Latin America, according to the latest Corruption Perceptions Index from Germany-based watchdog Transparency International. The Dominican Republic improved its transparency score by three points and now ranks 8th in Latin America, up from 12 in 2022. “The Dominican Republic…is the only country in the region that has made significant progress in the fight against corruption since 2021,” Transparency says.

During his keynote address at the Summit for Democracy 2023, US President Joe Biden praised the Dominican Republic for its efforts to fight corruption.

In this in-depth special report, Latinvex asked three experts about Abinader’s key achievements, including on red tape, energy and police reform and his plans for constitutional reforms making the independence for the Attorney General’s Office formal and permanent and the outlook for further corruption prosecutions.

Our panel: William Malamud, Executive Vice President of the Dominican American Chamber of Commerce; Alejandro Peña–Prieto, Latin America practice head at Squire Patton Boggs and managing partner of the firm’s Santo Domingo office and Mary Fernández, founding partner at Dominican law firm Headrick Rizik Alvarez & Fernández.

KEY ACHIEVEMENTS

Latinvex: What are the key achievements of Luis Abinader’s first presidential term?

Peña–Prieto: One of the main achievements of President Luis Abinader’s first term was the implementation of sound and effective public policies to address the effects of the COVID-19 pandemic. These policies included an effective vaccination program, as well as measures to ensure the rapid reactivation of the country’s economy and overall macroeconomic stability and economic growth. The “Zero Bureaucracy” program, aimed at reducing permit delivery times across various sectors, has been a significant policy. Other successful initiatives include programs to streamline customs procedures and facilitate trade, the implementation of the National Strategy for the Promotion of Exports, and efforts to encourage foreign direct investment in the Dominican Republic.

Fernández: The Dominican Republic’s trajectory over the last 20 years, but in particular over the last few years, has stood in stark contrast to much of Latin America. The Dominican Republic has shown continued economic growth, driven by tourism, energy and foreign investment. President Abinader’s emphasis on fighting corruption and implementing business friendly legal reforms is an important part of this agenda. Similarly, the steps taken with respect to institutional reforms may serve as a launching pad for additional reforms during his second term. It remains to be seen how successful he will be in implementing these deeper reforms and ensuring that they are drivers of economic growth, as opposed to creating impediments to the same.

Malamud: 1). Macroeconomic Stability. President Abinader assumed the presidency in August 2020, in the midst of the worst health crisis experienced by the world in a century. Despite the above, the Dominican Republic was the country that managed to emerge the fastest from the recession caused by the pandemic. In this sense, since that year the country has continued to grow at rates that, on average, have almost doubled the growth that has been registered in the Latin American region. Key decisions such as not making changes in the Central Bank Governor’s chair and a rapid response of fiscal aid contributed to quickly overcoming the difficult situation.

2). Management of the health crisis. The president demonstrated international leadership by quickly mobilizing resources that allowed the Dominican Republic to vaccinate a high percentage of the population in a short time. The successful implementation of this program, along with the economic measures mentioned above, allowed the Dominican Republic to reduce the costs of the pandemic, both economically and in human lives.

3). International Politics. During the mandate of President Abinader and his Foreign Ministry, the country has positioned itself in the eyes of the world as a prosperous, democratic country, with political, economic and social stability. This positioning has strengthened the country brand, and has brought, among other benefits to the country, the availability of vaccines during the COVID 19 crisis, greater international awareness about the risk posed by the situation in neighboring Haiti, the strengthening of the country as one of the most important tourist destinations in the world, with tourists visiting other areas of the country other than Punta Cana diversifying, greater foreign investment and an excellent positioning to take advantage of the opportunities that can arise from “nearshoring” or “friend shoring”.

4). Social Policy. Within budget limitations, the Government of President Abinader has made an effort to prioritize investments in social services. During the first four years of his administration, social assistance programs have doubled, health insurance coverage has been expanded, public hospitals, primary care centers, and sports infrastructure have been remodeled and expanded, in addition to reaffirming his commitment to public education through the construction and renovation of school centers.

5). Transparency and Fight against Corruption. The Government of President Abinader has strengthened the independence of the Public Ministry, providing full support for investigations and judicial processes in corruption cases. In addition, the President has implemented other measures that contribute to increasing transparency in the use of public resources. In his second term, the President has the opportunity to continue strengthening the country’s democratic institutions through constitutional reforms, tax reforms, electricity sector reform, among other important reforms.

RED TAPE

Latinvex: How would you characterize Abinader’s efforts to reduce red tape and improve the business climate? Will he be capable to make further progress in his second period as president?

Peña–Prieto: I would characterize President Abinader’s efforts on this front as very positive. The simplification of procedures and streamlining of processes have been significant challenges for the business climate in the Dominican Republic. The public policies implemented through the “Zero Bureaucracy” and the Ventanilla Unica de Inversion (a one-stop window to obtain investment-related permits and approvals) programs have positively impacted these areas.

I believe that with the continued effective implementation of the Zero Bureaucracy program in President Abinader’s second term, the desired and projected objectives of this initiative can be fully achieved, benefiting the country’s overall investment and business climates.

Fernández: President Abinader has been correctly characterized as a “business friendly” president. But this does not mean that he has ignored the more economically vulnerable population or otherwise only implemented policies that favor business interests. Rather, the success of his first term lies, at least in part, in his ability to balance policies that have led to continued economic growth and trust by the business sector in making new investments, while at the same time, also emphasizing quality of life improvements for ordinary citizens. If he can continue to tread that path, his second term could also be successful.

Malamud: The National Competitiveness Council (CNC) has the lead in reducing red tape. There have been significant advances across many Ministries.

1). Regulatory reforms: Passage of the new Customs Law, modernizing the legal framework for trade facilitation and aligning it with international best practices. Presidential Decrees on Aviation and Marine Fuel: Decree eliminating taxes on aviation fuel for international cargo vessels and cargo flights, boosting the competitiveness of Dominican airports as regional hubs.

2). Logistics Cabinet: Established the Logistics Cabinet, an inter-ministerial body to coordinate and oversee logistics and trade facilitation initiatives. By 2023, the Cabinet had successfully implemented 70% of the actions outlined in the National Logistics Plan 2020-2030.

3). National Trade Facilitation Committee (NTFC): Strengthened the role of the NTFC, which became more active in coordinating trade facilitation measures across government agencies. By 2024, the NTFC had implemented of 100% of the Dominican Republic’s commitments under the WTO Trade Facilitation Agreement.

4). Infrastructure development: Renovation of La Romana International Airport, improving cargo handling facilities and increasing capacity for perishable goods exports. Inaugurated a new air cargo terminal at Punta Cana International Airport, doubling the airport’s cargo handling capacity. Expansion of the Port of Caucedo, completed in 2023, increasing container handling capacity by 40%.

5). Customs Authorities Initiatives: Dispatch in 24 Hours: Launched in 2021, this program aimed to clear low-risk shipments within 24 hours. Implemented “Motor de Riesgo” (Risk Engine): an advanced risk management system in 2022, using AI and big data to improve targeting of high-risk shipments. VUCE (Ventanilla Única de Comercio Exterior): Expanded the Single Window for Foreign Trade (VUCE) to include 45 government agencies by 2024. Introduced new modules for sanitary and phytosanitary certificates, reducing processing times by 70%. Expanded the Authorized Economic Operator (AEO) program, with 100 companies certified by 2024. Implemented non-intrusive inspection technologies at major ports, reducing physical inspections while improving detection of illicit goods.

6). Increase in Logistics Operators: By 2023, the number of registered logistics operators increased by 30% compared to 2020.

ENERGY PROBLEMS

Latinvex: How would you characterize Abinader’s efforts to reduce blackouts? Will be able to reduce them to a minimum in his second period as president?

Peña–Prieto: The Dominican electricity sector continues to face significant challenges, particularly in the areas of transmission and distribution. The central government’s ongoing subsidies for the country’s three distribution companies are severely impacting fiscal stability. I anticipate that addressing these persistent challenges will be a top priority for President Abinader in his second term.

Fernández: The electric sector is probably the most challenging economic and budgetary aspect of Abinader’s term in office. While the government has been successful in promoting significant investment in the electric sector – and new generation is ensuring that supply essentially meets demand in the country – the widespread losses in the distribution of electricity have led to a 2.2% GDP deficit attributable solely to this element (the State owns the three largest electric distribution companies and assumes these losses). Blackouts are no longer an issue in the DR, but addressing this deficit and the poor efforts to collect on the power provided remain a significant challenge.

Malamud: The supply-side problem of blackouts has been solved, in part, through subsidy mechanisms, and in part by contracting emergency generation units whose production and sales costs are higher than the market average, all of which increases purchasing costs for distributors.

The exceptions are due to: a) unavailability of generation plants that have gone out for maintenance; and, b) problems in the distribution networks.

The decision to increase the supply of electricity has collateral effects, such as: a) Increase in losses of energy supplied and not collected. The greater the supply, the greater the losses; and, b) In that same proportion there is a greater financial deficit for electricity distributors, which also affects public finances since these losses become a fiscal deficit.

So while the generation challenge has been solved, the remains a significant challenge in making the sector financially sustainable. This will require significant investments in distribution, transmission, and collection from end users.

POLICE REFORM

Latinvex: How would you characterize Abinader’s efforts to reduce crime and improve the police?

Peña–Prieto: President Abinader’s administration has proactively addressed crime and initiated efforts to reform the National Police. The National Police system requires a thorough transformation, a process that will take time to yield significant results. The crucial point is that this reform is on the national agenda. I trust that in his second term, President Abinader will continue the effective implementation of this reform, leading to more substantial progress.

Fernández: The security situation in the Dominican Republic has made continual improvements during the past two decades, and it remains a relatively safe and low crime country. However, low-level crime (burglaries, thefts, assaults, among others) as well as feminicides continue to be a real problem in the country. The president has made it known that he believes that we can only continue to grow as a country and as a tourist destination with increased levels of sophistication and service by the police, and this has been a linchpin of his reforms. But these changes are slow, and they take time to be implemented, so the jury is still out on whether these efforts will be successful. Hopefully he will continue to prioritize this during his second term, as it is essential to the country’s long-term growth prospects.

CONSTITUTIONAL REFORMS

Latinvex: How significant are Abinader’s planned constitutional reforms on independence for the Attorney General’s Office and prohibition of any sitting president from changing the constitution so he can be re-elected more than one time?

Peña–Prieto: I understand that they are very significant. The independence of the Attorney General’s Office has been a cornerstone of President Luis Abinader’s administration. Guaranteeing the transparency and independence of the Attorney General’s Office is highly beneficial for the nation and its investment climate. These efforts strengthen the rule of law and fortify national institutions.

Fernández: One of Abinader’s most salient success stories from his firm term were the selection of an independent person to act and Attorney General. This long time judge, Miriam German, has led the ongoing processes prosecuting significant corruption cases from prior administrations, as well from the present administration. Former president’s direct family, high military officers- generals- as well as the former Attorney General are presently being prosecuted for corruption. However, this was the product of Abinader’s will to select an independent and courageous person to act as Attorney General. Civil society has long claimed for the Attorney General to be independent from the President, and Abinader has promised to include this in his proposed Constitutional reform. In my understanding, the prohibition of any sitting president from changing the Constitution so he can be re-elected more than one time, is hard — if not difficult — to achieve, because no matter what the Constitution says, it will always be subject to change. However, since the President will have a significant majority in both the house-Cámara de Diputados- as well as in the Senate- Senado de la República- President Abinader will be able to pass probably any reform that he wishes to, including a modification of the Constitution.

CORRUPTION PROSECUTIONS

Latinvex: Do you expect that the Attorney General’s office will continue with its aggressive investigations and prosecutions of corruption even though current Attorney General Miriam German has announced she will retire when the current government’s mandate ends August 16, 2024?

Peña–Prieto: I believe the Dominican legal system must continue to prioritize transparency and actively pursue all acts of corruption. The work of the Attorney General’s Office is crucial in this regard. Both within the Attorney General’s Office and across the country, there are many capable and committed lawyers who can continue the excellent work of the current Attorney General. I understand that an important goal for President Abinader’s second term ought to be to further strengthen the transparency of the Dominican legal system.

Fernández: Whether the Attorney General’s office will continue with its aggressive investigations and prosecutions of corruption will depend on the Attorney General selected by the President. If Abinader selects another independent, courageous, prepared attorney with integrity principles to act as Attorney General, the possibility would exist that the Attorney General’s office would continue investigating and prosecuting the corruption cases as it has been doing during the present Abinader’s term. In my understanding, this should be one of Abinader’s priorities, since the prosecution of corruption cases has been one of the showcase successes Abinader has been able to exhibit.

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