Country Report Dominican Republic November 2009

Outlook for 2010-11

• Mr Fernandez will face considerable popular discontent during the remainder of his presidency (which ends in 2012), as a result of frustration with inadequate public services, corruption and rising crime.
• Focus is now turning to the legislative election set for May 2010, in which it seems increasingly likely that the opposition PRD will gain a majority.
• We now estimate that the fiscal deficit will be 3.2% of GDP in 2009, financed mostly by multilateral loans and backed by an IMF stand-by arrangement. The deficit will narrow only gradually in 2010, but will narrow to 1% in 2011.
• Official GDP growth of 1.4% in January-June appears inconsistent with sharp declines in most economic indicators. We estimate that full-year growth will be 1.5%. This will reach 2.6% in 2010 before a slight fall back to 2.3% in 2011.
• Annual inflation will remain low in the coming months, but will end the year around 5% owing to base effects and higher oil prices. We expect inflation to average 5.6% in 2010 and 2011, within official targets.
• IMF support and US dollar weakness have improved the immediate outlook for the peso. We expect it to end the year at Ps36.4:US$1 (currently Ps36.16:US$1) and continue on a trend of gradual depreciation in 2010-11.
• Weak export earnings and remittances inflows will lead to a current-account deficit of 5.5% of GDP in 2009, despite contracting imports. The deficit will widen to 6.6% in 2010 as import costs rise, before narrowing to 6% in 2011.

Monthly review

• The second round of constitutional reform has provoked sharp public criticism against the potential reduction of public rights and the way the leaders of the two dominant parties have controlled the process.
• The government signed a Letter of Intent with the IMF on October 6th, requesting a US$1.7bn (SDR1.09bn) loan under a 28-month stand-by arrangement. It is expected to be approved in the coming weeks.
• US$990m worth of multilateral disbursements is expected to be released by the IMF agreement with US$300m from the both the IMF and World Bank and US$390 from the IDB.
• The Central Bank's macroeconomic programme has been altered to include a fiscal deficit equivalent to 3.1% of GDP (an increase from 1.9% in the original version) in 2009 before narrowing to a 2.6% of GDP deficit in 2010.
• Annual consumer price deflation fell further to 1.6% in September, its third consecutive month in negative terms and the lowest recorded level in at least 15 years, as the monthly consumer price index (CPI) rose by just 0.1%.

This report covers the following industry codes:
SIC Code: 47;70
NAICS Code: 48;72