Country Report Dominican Republic December 2008

Outlook for 2009-10

• Despite winning by a comfortable margin in May elections MrFernandez is in a weaker position than during his previous term (2004-08), owing to lingering discontent over corruption, slow socioeconomic progress and rising prices.
• The ruling PLD has just a small window of opportunity to advance its legislative programme ahead of mid-term elections in 2010, when its majority in both houses of Congress is likely to be reduced.
• As conditions deteriorate confidence in the administrations ability to manage fiscal and macroeconomic policy will be eroded quickly if policy targets are not met in the outlookperiod.
• GDP growth in 2009 will decline to 1.8% (previously 3%) from an estimated 4.8% (previously 5.5%) in 2008 as external conditions worsen and domestic demand growth declines sharply; 3.8% growth in 2010 is a slow recovery.
• A further decline in fiscal revenue growth in 2009 will lead to a primary deficit of 0.5% of GDP before accounts return to a small 0.4% surplus in 2010.
• As import costs decline on the back of lower oil prices, but continue to outstrip export earnings, we forecast current-account deficits of 4.9% and 5.1% of GDP in 2009 and 2010, respectively (previously 6.5% and 6.3%).
• After ending 2008 at 11% we expect that annual inflation will ease further but will remain above the official 4-6% target in 2009 and much of 2010.
• Risks to our projection of a steady weakening of the currency in the outlook period are weighted on the downside, given the magnitude of the Dominican Republic's external financing requirement and adverse global conditions.

Monthly review

• Mishandling of the domestic energy crisis by the government has led to public protests and grumbling from both the private sector and members of the ruling PLD.
• Debate on a constitutional reform proposed by the government will be pushed back until January as the Congress focuses on the 2009 budget.
• Real GDP grew by just 1.3% in the third quarter, the lowest rate since 2004. Economic growth for January-September declined to 5.4% from 7.5% in January-June.
• Pressures on the fiscal accounts have increased as figures show that spending rose by 29% in January-September, outpacing revenue by Ps22.7bn (US$643m).
• The US financial crisis is hitting tourism investment in the Dominican Republic. The 1200-ha Cap Cana luxury tourist development has been put at risk of default because of funding difficulties.

Source: Country Report

This report covers the following industry codes:
SIC Code: 13;49;60;70
NAICS Code: 211;22;52;72