Country Report Dominican Republic May 2009

Outlook for 2009-10

• MrFernandez's position will weaken amid growing discontent over corruption and sharply deteriorating economic conditions, raising the prospect of increased protests and unrest in 2009-10.
• The PLD's legislative programme will focus on plans to stimulate the economy and push through long-delayed constitutional reforms before the mid-term elections in 2010 begin to dominate politics.
• The administrations 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.
• Tight financing conditions will mean government spending cuts in 2009, reducing the central government deficit to 2% of GDP, but lifting public debt to 43% of GDP. The deficit will stay at 2% in 2010.
• Given the collapse in global trade since end-2008, the deepening US recession and a sharper forecast contraction in consumption, we now expect GDP to contract by 2.5% in 2009. Recovery will be slow as GDP grows by 1.8% in 2010.
• Annual inflation will continue to fall through the first half of 2009, but will end the year at 5.7% as the peso depreciates. It will average 7.3% in 2010.
• Risks to our projection of a 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 in 2009 we forecast a reduction in the current-account deficit to 4.2% of GDP. Weak export earnings and stronger import prices in 2010 will lead to a deficit of 5.9% of GDP.

Monthly review

• Demonstrations orchestrated by the Colegio Medico Dominicano (CMD, Dominican Medical Association) on the part of public healthcare employees have gained momentum and are presenting difficulties for the government.
• The constitutional reform process is underway, but instead of focusing on presidential re-election and executive powers, certain subsidiary themes such as religion, abortion, and womens rights have been the focus for debate.
• In April the Central Bank cut its benchmark interest rates for the fourth time in as many months (to 5%), in the hopes of spurring private lending.
• Unemployment is rising. Around 5,000 workers have been laid off in the first three months of the year in free-zone and cigar manufacturing.
• Tourism is feeling the crunch. The number of tourist arrivals dropped by 5% year on year in January-March 2009, the peak tourist period.

This report covers the following industry codes:
SIC Code: 70
NAICS Code: 72