U.S. banks seeking to expand overseas may be more likely to turn to the Caribbean country of the Dominican Republic, now that it has passed a new banking law.
Located on an island in the Caribbean, the Dominican Republic is a growing destination for U.S. businesses seeking to establish or expand overseas operations. An economically and politically stable country organized as a representative democratic government, the Dominican Republic is the Caribbean's largest democratic country. The Dominican Republic inflation rate is lower, and its growth rate is significantly higher, than other Central and Latin American states. As a result, the Dominican Republic is likely to continue receiving an even greater amount of U.S. -- and international -- investments for the remainder of this decade. Registered foreign investment in the Dominican Republic during 2001 exceeded US$1,200 million -- 25 percent more than in 2000.
Indeed, a recent report by the International Monetary Fund pointed out that "[a]fter suffering a decade of economic stagnation in the 1980s, the Dominican Republic took off in the second half of the 1990s and, with output growing at nearly 8 percent a year, became one of the world's fastest growing economies." In the IMF's view, the Dominican Republic "is a textbook case of a small economy with limited natural resources that, by opening itself to trade and financial flows, has been able to turn its economy around."
Reasons For Growth
There are many reasons for this incredible growth. The country has engaged in substantial economic reform, removed many exchange and trade restrictions, and reduced the government's role in the economy. Since the Dominican Republic joined the World Trade Organization in early 1995, it has accelerated changes to the country's legal system with respect to international trade. Both Moody's and Standard & Poor's recently upgraded the country's ratings.
Recently enacted tax incentives, especially in connection with free trade zones, also encourage investment. Moreover, communication within the Dominican Republic -- as well as to and from the country -- is world-class. Dominican corporations, including a Verizon subsidiary and a Motorola joint venture, have made the country a continental leader in this area; its voice, data, and video systems have a quality second only to the quality in the United States and Canada.
The Dominican Republic has an ample labor force, from highly skilled manual workers to sophisticated management and administrative personnel. It should be noted that the country has ratified all international labor conventions, including those relating to discrimination, unions, and child labor. It also participates in international environmental agreements relating to biodiversity, climate change, endangered species, marine dumping, marine life conservation, ozone layer protection, and ship pollution.
The Dominican Republic is a participant in a wide range of multilateral trade agreements, such as the Caribbean Basin Initiative, which was introduced in 1984 to promote trade relations and foreign investment between the Caribbean and the United States. The CBI provides for duty-free import into the U.S. of most manufactured goods and guaranteed access levels for assembled textiles products. The country also enjoys duty-free access to the U.S. markets under the generalized System of Preferences. It participates in the Lom (now Cotonou) Convention, which opened the door to the European Union market, and other agreements with the Caribbean Islands (CARICOM) and Central America.
New laws -- such as a General Electricity Law, a Fuel Tax Law, and a market values law -- enacted by the Dominican government seek to encourage foreign investment. They have extensively reformed the economy -- and privatized numerous industries.
For example, a foreign investment law, enacted in the mid-1990s, restructured the legal system to make it easier to invest in the Dominican Republic. Among other things, the law opened previously forbidden or restricted areas of the Dominican economy to foreign investment, established uniform treatment of domestic and foreign investors, and eased restrictions on technology transfer agreements.
New Banking Law
Late last year, the Dominican Republic enacted a new banking law that revises the country's monetary and financial system and that eases the way for U.S. banks to enter the Dominican market. Under the new Dominican law, banks and other financial institutions organized pursuant to the legislation of the United States (and other countries), and non-Dominican individuals and corporations, may participate in banking activities within the Dominican Republic by:
acquiring shares of existing Dominican banks and credit institutions;
forming new financial institutions;
creating an affiliate of an existing bank or credit institution;
establishing bank branches organized in accordance with U.S. or other countries' legislation; and
opening representative offices.
The law is divided into four separate titles. The first establishes the regulatory and institutional framework. The second relates to the monetary system. The law next deals with regulation of the financial system. Finally, it concludes with transitional provisions and the like.
The Regulatory And Institutional Framework
The system established by the new Dominican law will be familiar to those with knowledge of the American financial regulatory system. The law begins by declaring the regulatory principles of the monetary and financial system. In particular, it provides that the regulation of the monetary and financial system throughout the Dominican Republic will be implemented exclusively by the Monetary and Financial Bureau. The country's monetary and financial system, stock market and insurance and pension systems are governed by their own laws, with the Monetary and Financial Bureau and the supervising and monitoring bodies of the stock market, insurance and pension systems coordinating their actions.
As set forth in the law, the regulation of the country's monetary system has as its objective the maintenance of price stability. Regulation of the financial system is intended to ensure the liquidity, solvency and management of financial services entities to ensure the normal functioning of the system -- a free market system -- within a framework of competitiveness and efficiency.
The Monetary and Financial Bureau is obligated to guarantee the adequate functioning of the monetary and financial system through the implementation of monetary policy, its regulations, and its supervision and control of the operations of financial services entities. Regulatory provisions of the Monetary Board are referred to in the law...