Country Report Dominican Republic

Outlook for 2008-09

• Our forecast is based on the assumption that Mr Fernandez will win a third term at the May 16th 2008 presidential election. We expect a first round win, but if voting were to go to a second round his mandate would be weakened.
• Despite the comfortable majority of the ruling PLD in both houses of Congress, Mr Fernandez will face challenges from the legislature, as party discipline is weak.
• Economic policy is likely to continue to be guided by some form of agreement with the IMF, although the stand-by arrangement that expired in January may not be renewed.
• Policy will include targets for fiscal consolidation and improvements in the financial sector, energy sector and governance.
• As GDP growth slows, from 8.5% in 2007 to 4.7% in 2008 and 4.1% in 2009, fiscal consolidation will become more difficult.
• After overshooting the 6% target ceiling in 2007, we expect inflation to ease slightly by 2009. The exchange rate is set to weaken as the current-account deficit widens, but our forecast assumes the adjustment will be gradual.
• Our forecast is based on the assumption that Mr Fernandez will win a third term at the May 16th 2008 presidential election. We expect a first round win, but if voting were to go to a second round his mandate would be weakened.
• Despite the comfortable majority of the ruling PLD in both houses of Congress, Mr Fernandez will face challenges from the legislature, as party discipline is weak.
• Economic policy is likely to continue to be guided by some form of agreement with the IMF, although the stand-by arrangement that expired in January may not be renewed.
• Policy will include targets for fiscal consolidation and improvements in the financial sector, energy sector and governance.
• As GDP growth slows, from 8.5% in 2007 to 4.7% in 2008 and 4.1% in 2009, fiscal consolidation will become more difficult.
• After overshooting the 6% target ceiling in 2007, we expect inflation to ease slightly by 2009. The exchange rate is set to weaken as the current-account deficit widens, but our forecast assumes the adjustment will be gradual.

Monthly review

• Opinion polls have consistently suggested that the incumbent, Mr Fernandez, will win the presidential election on May 16th, although the margin of his lead has varied.
• Labour unions have taken strike action in support of demands for higher wages, while the government has faced allegations of corruption.
• Unrest in Haiti has heightened concerns about border security.
• The latest data have shown a sharp increase in government spending in the first quarter, led by the cost of subsidies. There has been strong revenue growth, but this has not been enough to prevent a widening of the deficit.
• With the election approaching, the government has stepped up direct intervention to contain increases in the prices of basic goods.
• Amid rising inflation, there have been signs of a slowdown in the housing market.
• Official balance of payments figures show a widening of the current-account deficit and an increase in inflows of foreign direct investment.
• Opinion polls have consistently suggested that the incumbent, Mr Fernandez, will win the presidential election on May 16th, although the margin of his lead has varied.
• Labour unions have taken strike action in support of demands for higher wages, while the government has faced allegations of corruption.
• Unrest in Haiti has heightened concerns about border security.
• The latest data have shown a sharp increase in government spending in the first quarter, led by the cost of subsidies. There has been strong revenue growth, but this has not been enough to prevent a widening of the deficit.
• With the election approaching, the government has stepped up direct intervention to contain increases in the prices of basic goods.
• Amid rising inflation, there have been signs of a slowdown in the housing market.
• Official balance of payments figures show a widening of the current-account deficit and an increase in inflows of foreign direct investment.