Emerging Markets: Tropical Paradox

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Still, the system is riddled with privileges for the politically well connected, leaving the majority of Dominicans eking out a living in the underpaid informal sector. Spending on health and education is anemic, even by regional standards, and the rule of law is a work in progress. An unusually candid recent United Nations Development Program report torched the country's élites for being out for themselves with no sense of the commonweal.

It is unclear just how much Fernández means to challenge this, even though his Dominican Liberation Party (PLD) is slightly left (but pro-business) and his upbringing quite modest. His mother fled the island to work as a seamstress in a New York City garment factory, which afforded Leonel some formative years in New York City's Upper West Side. To many, Fernández seems more fixated on consolidating power than on advancing his government's ambitious agenda. His government, for example, is spending almost as much building a subway line--$700 million--as it does on education and health together. And despite his rhetorical intolerance of corruption, Fernández hasn't seriously challenged the country's long-standing culture of impunity enjoyed by thieving élites. "Leonel is the most capable politician we have, and he understands very well what the country needs to do to modernize, but politically he is proving to be very traditional, indulging in the most perverse forms of Dominican politics, paternalism and corruption," says Pedro Catrain, a deeply disappointed friend from law school. Fernández, for his part, has said fighting corruption is a hallmark of his administration.

It's probably too early for unequivocal verdicts, but it seems fair to say that Fernández often appears to be trying to have it both ways. Take the recently concluded free-trade agreement with the U.S. Fernández gets points for pushing the Dominican Congress to go along, but with nearly 90% of its exports going to the U.S., the country really had little choice. And Fernández's party delayed implementation, which allowed a pipeline of infrastructure projects to go to favored contractors without the fuss of open bidding required by the new accord. That includes the subway contract, which went to Diandino Peña, who is Fernández's biggest financial supporter. "Transparency is an evil word here," says Kevin P. Manning, president of the local American Chamber of Commerce. Fernández has likened the subway to Paris' Eiffel Tower, which also faced opposition.

The country's economic troubles have conveniently handed international donors--who ponied up more than $1 billion to see it through the banking scandal--more leverage to drive reform. Most critical for business is the debilitated electricity sector: 45% of the national utility's receivables go unpaid, requiring a government subsidy of $620 million last year. Such is the bitter fruit of decades of political favoritism, and donors such as the World Bank say they want to see an aggressive--and unprecedented--crackdown on delinquent customers, no matter how, uh, connected they are. "If you don't address the issue of the large consumers who don't pay, you have no chance of resolving the energy-sector crisis, except on the backs of the poor," says Caroline Anstey, the World Bank's Caribbean regional director.