Country Report Dominican Republic February 2009

Outlook for 2009-10

• Since winning a strong re-election mandate in May 2008, Mr Fernandez's position has weakened amid growing discontent over corruption and sharply deteriorating economic conditions, raising the prospect of rising social unrest.
• The PLD's legislative programme will focus on plans to stimulate the economy and crafting constitutional reform before mid-term elections in 2010.
• The administration’s ability to meet its macroeconomic and fiscal policy goals will be limited by a severe economic downturn and structural weaknesses in the government's accounts.
• A decline in fiscal revenue in 2009 will lead to an NFPS deficit of 3.7% of GDP before recovering slightly to a deficit of 3.0% in 2010.
• Real GDP will contract in 2009 by 0.8% as external conditions worsen and the sharp deceleration of domestic demand under way since mid-2008 intensifies; 2.3% growth in 2010 is a slow recovery.
• After dropping sharply in November and December to end 2008 at 4.5%, annual inflation will continue to fall in early 2009, but will end the year at 6.5% as the peso depreciates. Inflation will average 8.6% in 2010.
• Risks to our projection of a sharp 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.
• As import costs decline on the back of lower oil prices, but continue to outstrip export earnings, we forecast current-account deficits of 4.5% and 6.2% of GDP in 2009 and 2010, respectively (previously 4% and 5.4%).

Monthly review

• Fresh accusations of corruption and misconduct by members of Congress and the national police have further eroded confidence in the PLD government.
• An unenthusiastic response by the opposition and some private sector groups to the convening of a national economic summit by Mr Fernandez in late January has underscored rising scepticism about government effectiveness.
• The 2009 budget, which calls for Ps329.9bn in spending and forecasts a deficit of 1.7% of GDP, was approved by both the Senate and the Chamber of Deputies in early January.
• During its first Post-Programme Monitoring agreement review, the IMF flagged up concerns about exchange-rate policy and the external accounts.
• Lay-offs in the mining and free-zones sector totalled around 126,000 in September 2008 and more were expected in late 2008 and early 2009.

Source: Country Report

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