Country Report Dominican Republic January 2009

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 and sharply deteriorating economic conditions.
• The PLD's legislative programme will focus on plans to stimulate the economy and crafting constitutional reform before mid-term elections in 2010.
• The administrations ability to meet its macroeconomic and fiscal policy goals will be limited by the extent of the global economic downturn and the poor state of the government's accounts.
• A decline in fiscal revenue in 2009 will lead to a primary deficit of 1.8% (previously 0.5%) of GDP before recovering slightly to a deficit of 0.8% in 2010.
• GDP growth in 2009 will decline to 1.8% from an estimated 4.7% in 2008 as external conditions worsen and the sharp deceleration of domestic demand under way since mid-2008 intensifies; 3.3% growth in 2010 is a slow recovery.
• After dropping sharply in November we estimate that annual inflation will end 2008 at 6%. Inflation will continue to fall in early 2009 but end the year at 7% as the peso depreciates. Inflation will average 9% 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% and 5.4% of GDP in 2009 and 2010, respectively (previously 4.9% and 5.1%).

Monthly review

• As the third-largest party, the PRSC, loses significance and party members flee to the ruling PLD a two-party system is emerging.
• Plans outlined by Mr Fernandez to generate employment and stimulate the economy in 2009 by increasing infrastructure development are subject to a series of uncertainties over financing.
• The government and the IMF announced that they planned to sign a post-programme monitoring (PPM) agreement in early 2009.
• In early December the government requested an additional US$305m for the 2008 budget to settle an outstanding debt with private electricity generators.
• Sharply slowing domestic demand and falling global commodity prices combined to produce a sharp decline in November monthly inflation bringing annual inflation down to 7.2% from 12.8% in October.

Source: Country Report

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