US downturn, what can DR do to not get hard hit?

[Dolores]

What actions could the DR take to suffer less in the case of a downturn of the US economy? It has been said that one of the reasons for the past good government of Leonel Fernandez was that the economy was doing great in the US (1996-2000) and fuel prices were very low. DR economy is tied in with the US because of the remittances and trade, and now if DR-CAFTA gets to happen we will be even more affected.

To start answering my own question am thinking the country should continue negotiating treaties with other countries -- Canada, for instance, and closer ties with Europe. But it should continue pushing sectors where it has shown to be resilient -- such as the tourism sector, now with much success in selling prime properties to foreigners. The upper echelons of US society will continue to have lots of money, and now with the baby boom generation coming into their 50s+.

Any more ideas...

[NALs]

Originally Posted by Dolores

What actions could the DR take to suffer less in the case of a downturn of the US economy? It has been said that one of the reasons for the past good government of Leonel Fernandez was that the economy was doing great in the US (1996-2000) and fuel prices were very low. DR economy is tied in with the US because of the remittances and trade, and now if DR-CAFTA gets to happen we will be even more affected.

To start answering my own question am thinking the country should continue negotiating treaties with other countries -- Canada, for instance, and closer ties with Europe. But it should continue pushing sectors where it has shown to be resilient -- such as the tourism sector, now with much success in selling prime properties to foreigners. The upper echelons of US society will continue to have lots of money, and now with the baby boom generation coming into their 50s+.

Any more ideas...

Underlying your own answer is the basic economic principle the DR should always persue: DIVERSIFY, DIVERSIFY, DIVERSIFY!!!

Certainly, the country has learned the lesson of being a monoculture, with today's economy being extremely more diversified than ever.

However, the country needs to diversify with whom it trades, the US is too influential on Dominican affairs at the moment.

Having said this, a downturn in the US will hit the DR hard regardless, especially if such downturn trickles to Europe and other regions of the world.

I've said this a few months ago and I got plenty of heat from some DR1ers for saying this, but the Kontratiev long wave theory has been surprisingly accurate with it's predictions of upsurge and downturn in the global economy.

The economy is suppose to be on a downturn in the next few years, this is certain. The biggest question is whether it will be a mild downturn which would allow for a quick resurgence in business after the new business cycle kicks in or will the downturn become severe.

Always keep this in mind.

-NALs

[RonS]

While not an Economist, diversification certainly sounds like a sound strategy to me. Investing in indigenous industries which can compete in gobal markets is another. Tourism is wonderful, however, it really sounds to me to be too dependent on US, Canada and European markets. The energy situation is pivitol. Can anyone access the impact of Leonel's reproachment with Venezula? I thought it was brilliant, dispite US grumblings.

[qgrande]

Originally Posted by NALs

Underlying your own answer is the basic economic principle the DR should always persue: DIVERSIFY, DIVERSIFY, DIVERSIFY!!!

Diversification, especially as an aim to diversify trade geographically, more Europe, Latin America, East Asia, Middle East (can't Leonel give some Saudi Prince a nice vacation home, and when he's at it, perhaps some assets for his harem, things the DR is good at ) sounds like a sound idea. But just a question, another economic model is pretty popular as example for small countries, that of Finland and it's mobile phones, relying succesfully on one single type of product. Why not the DR? (just interested in your opinion).

[NALs]

Originally Posted by qgrande

But just a question, another economic model is pretty popular as example for small countries, that of Finland and it's mobile phones, relying succesfully on one single type of product. Why not the DR? (just interested in your opinion).

I'm not sure what you may be referring to, but I will assume you mean Finland has specialized in exporting mobile phones?

Assuming that is what you meant, its all based on comparative advantage. Every country (the bigger the country, the more likely it will have a comparative advantage in more than one economic sector) should actually exploit the economic sectors in which it has a favorable comparative advantage and specialize in that while importing the rest.

The basic principle in such theory is that if countries specialize in the things they do best and trade, all parties involved will gain significantly in both quantity and quality of the goods/services provided.

I could get deeper in explaining this, but I'm not sure if this is what you were referring to or if it was something else.

Please clarify.

-NALs

[gary short]

Pursuing trade with China would be a good hedge.

[qgrande]

Originally Posted by NALs

I'm not sure what you may be referring to, but I will assume you mean Finland has specialized in exporting mobile phones?

I could get deeper in explaining this, but I'm not sure if this is what you were referring to or if it was something else.

Please clarify.

Yes, more or less. Sorry, I thought it was pretty well known. A couple of years there was quite a hype about Finland with an economic boom almost only based on one sector, mobile phones, and one company, Nokia. It was presented as a model, and an example how small states do not always need to diversify their economy, but could succesfully opt for specialisation instead. The Dominican Republic is a small country, that's why I mentioned it. But of course mobile phones are not the same as sugar cane..

[rellosk]

Since a large part of the Dominican economy is dependent upon remittances from the US, it seems that it might not be possible to distance the DR from an economic downturn in the US.

My guess is that foreign remittances are a far bigger percentage of the GDP than manufacturing or agriculture. Based on that premise, diversifying foreign trade won't help much.

[NALs]

Originally Posted by qgrande

Yes, more or less. Sorry, I thought it was pretty well known. A couple of years there was quite a hype about Finland with an economic boom almost only based on one sector, mobile phones, and one company, Nokia. It was presented as a model, and an example how small states do not always need to diversify their economy, but could succesfully opt for specialisation instead. The Dominican Republic is a small country, that's why I mentioned it. But of course mobile phones are not the same as sugar cane..

Ok. Yes, comparative advantage played a role in that.

However, a small economy does not needs to diversify if its comfortable taking the risk of a global downturn on the one product the country is living from. Remember, that is how the DR got into a serious economic crisis with the depression of sugar prices.

Sugar was as good as oil is today to the oil rich countries, until the boom busted. That's the problem with an economy dominated by cash cow industry.

Diversification should always be desired and attempted.

-NALs

[Tuan]

On a US downturn remittances will shrink. But if the DR markets Baby Boomer retirement communities now, the pension and SocSec incomes they bring into the country will more than make up for loss in remittances.
As for cash cow economy, H. Mejía told the Spanish press in 2001 that the DR's finest export was its women. Agreed.
NALs: I thought the last Kondratev cycle ended in 1990 which would put is halfway into a 25 year expansion?