Emerging Markets: Tropical Paradox

It's pretty clear that Leonel Fernández, 53, and now midway through his second, nonconsecutive term as President of the Dominican Republic, has the vision thing. When developers proposed the country's first modern port during his first term, "he got it right away--'We can be the Singapore of the Caribbean'--his words," recalls Dominican businessman Samuel A. Conde, who is looking to set up a regional logistics center.

More recently Fernández has been pitching his island as a site for movie productions. He hired a Florida firm to act as the country's national film commission, and he had Robert De Niro over for lunch at the Presidential Palace.

Perhaps even more audacious, for a country still rebounding from a colossal banking scandal, the D.R. is trying to germinate a new $800 million regional financial center. "Leonel Fernández is very much a vision man ... This is exactly the sort of visionary project he absolutely loves," says Gaetan Bucher, a Swiss-Dominican banker and the lead investor in what will essentially be an offshore entity, first trading Latin American debt and later offering a safe haven for private wealth and corporate banking.

There are many other parts to Fernández's vision of how to win a better place in a globalized world. Making the rest of the country's economy as competitive as its beaches requires enhancing current strengths as an assembly export platform (more than 500 companies operate from its free-trade zones) and retaining a bigger share of its foreign-investor-dominated tourism industry, which accounts for 12% of the country's $29.1 billion GDP. It also means diversification. The challenge is an urgent one: 80% of the country's 9 million inhabitants are under 40, and 42% live in poverty. More than 12% of them have already left, mostly for the U.S. They send back almost $3 billion in yearly remittances.

Fernández has a record of delivering. During his first term (1996-2000), the D.R. enjoyed the highest growth rate in the Latin American region. His successor and predecessor, Hipólito Mejía, presided over a banking scandal in 2003 that triggered an economic nosedive that wiped out 20% of GDP (imagine $2.8 trillion disappearing in the U.S.) and plunged an additional 1 million Dominicans into poverty. Since retaking the top job 20 months ago, Fernández has put the country back on the mend, restoring macroeconomic stability and business confidence. Last year's growth soared 9.2%, with single-digit inflation, down from 28.7% in 2004.

That is not to say all is well. "The country trusts him with the economy, but he does not seem to pay that much attention to social issues," says José Oviedo, a sociologist at a local Catholic university. That's just what soured voters on his first term: prosperity that did not seem to reach enough people. The problem is a trickle-down economic and political system that is still evolving from the dark, authoritarian past of the Rafael Trujillo era that left mere crumbs for social expenditures. Forty-five years later, the economy has dramatically diversified from its plantation foundations of sugar and coffee.