Round-the-clock power blackouts and nightly gunfights between rival drugs gangs that lurk on her doorstep in Gualey, a barrio of Santo Domingo, make life tough for Rosa Pimentel.

But if subsistence in a zinc-roofed shack was not miserable enough, it would become unbearable for Rosa if she were unable to run her cooker with cheap propane gas. “If the government lifts the subsidy on gas we would fall into the abyss,” says Ms Pimentel, 43, as she boils a pot of rice for her five hungry children.

Just such a prospect looms as Leonel Fernández, president of the Dominican Republic, executes a series of painful economic measures to prevent the ailing Caribbean economy from sinking further.

Mr Fernández took office two months ago after defeating Hipólito Mej´a's re-election attempt in May. Mr Mej´a had mismanaged a bail-out of the country's second-largest bank at a cost of 20 per cent of gross domestic product, causing a collapse of the peso and surging inflation.

But it remains unclear whether Mr Fernández will be able to return the Dominican Republic to the boom years over which he presided during his earlier term as president from 1996-2000.

Last month, legislators approved a rise in sales taxes and a 20 per cent cut in public spending including the elimination of a subsidy on propane gas, beginning in January to cut the budget deficit by 3 per cent of gross domestic product. Consumption of propane gas, used widely among the poor, has grown markedly in recent times as the state's debt to private electricity suppliers has ballooned and blackouts become more frequent.

Implementation of a fiscal adjustment programme is a condition for the renewal of a standby agreement with the International Monetary Fund, and in turn a re-negotiation of outstanding debt with Paris Club creditors.

Angel Lockward, a local economist, says there are signs that the situation is already improving under Mr Fernández.

“The improvement in confidence due to the change in government alone has tended to stabilise the economy,” says Mr Lockward. “Approval of the fiscal reform should ensure that economic stability is sustainable.”

Since Mr Fernández took office, the peso has regained some of the 50 per cent of the value it lost during the previous year. Inflation has decelerated and the economy is beginning to grow.

Meanwhile, the government is attempting to develop a safety net to avoid what could be a popular backlash from the majority poor in the weeks ahead as a result of the adjustment.

“The critical situation we found we have inherited requires a major fiscal adjustment,” says Vice-President Rafael Albuquerque. “We are therefore starting a social compensation programme to deal with the increase in poverty. But we are going to focus this assistance.”

The government has begun issuing state-funded debit cards that will allow cardholders to qualify for gas subsidies, and for the extremely poor to buy up to 550 pesos' ($18, €14.50, £10) worth of staple food items.

But analysts are sceptical that the authorities will be able to distribute enough debit cards and properly identify those who are eligible among 8.8m Dominicans by the time prices increase when subsidies are lifted.

“This is a time bomb,” says Daniel Pou, professor at the Latin American Social Sciences (Flacso) institute in Santo Domingo. The poor will be further hit because the tax increases will mostly affect middle-income groups, on whom the poorest depend for service-type employment, he says. “The problem for the poorest sectors is that they depend a lot on the middle-income sectors,” says Prof Pou.

“If you lose your employment and do not have any money, it does not matter if there are subsidies or not.”

Officially unemployment is running at 16 per cent but the informal economy occupies a larger share of the population. The crisis of the past three years has also prompted a surge in emigrants: in the past 10 months, more than 7,000 Dominicans have been caught attempting to reach Puerto Rico.

But some are convinced that the Dominican Republic's worst crisis in decades is nearing an end, and that Mr Fernández will deliver the solution. “With no electric light, insecurity and few jobs, we live in a state of collective neurosis,” says Arelis Morán, a community leader in Gualey. “But the population is hopeful that things are going to change for the better.”