The Dominican Republic is a middle-income developing country primarily dependent on agriculture, trade, and services, especially tourism. Although the service sector has recently overtaken agriculture as the leading employer of Dominicans (due principally to growth in tourism, energy, telecommunications, and Free Trade Zones), agriculture remains the most important sector in terms of domestic consumption. The tourism service balance totaled $2.7 billion in 2002, with the sector posting strong growth in the first half of 2003. Free Trade Zone earnings and tourism are the fastest-growing export sectors. Remittances from Dominicans living in the United States are estimated to total nearly $2 billion per year.

Following economic turmoil in the late 1980s and 1990, during which the GDP fell by up to 5% and consumer price inflation reached an unprecedented 100%, the Dominican Republic entered a period of high growth and moderate inflation. The country led the hemisphere in GDP growth for the latter half of the 90s. After slowing in 2001, GDP in 2002 grew by 4.1%. Inflation in 2002 was 10.5%. In 2003, economic problems resulting from a massive bank failure precipitated an IMF standby agreement, signed in August.

Exports, tourism and remittances remain the primary foreign exchange earners. Foreign exchange reserves declined sharply in mid-2003, due in large part to capital flight resulting from uncertainty in the financial sector. The government faces several economic policy challenges as it seeks to meet IMF performance criteria under the standby agreement--energy sector payment arrears, high real interest rates, poor tax-collection rates, and a high quasi-fiscal deficit resulting from Central Bank certificates issued to back deposits of failed banks. The Dominican Republic has taken steps to liberalize trade, and the United States has announced its intent to negotiate a free trade agreement in 2004.