Country Report Dominican Republic October 2009

Summary

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.
Revenue is down sharply and we now estimate that the fiscal deficit will be 2.7% of GDP in 2009, financed mostly by multilateral loans as part of an IMF stand-by arrangement. The deficit will narrow only gradually in 2010-11.
Official GDP growth of 1.4% in January-June is difficult to explain given sharp declines in most economic indicators. We expect domestic demand to remain weak throughout most of 2009. Growth will rise to 2.6% in 2010.
Annual inflation will remain low in the coming months, but will end the year at 5.5% owing to base effects and higher oil prices. We expect inflation to average 6% in both 2010 and 2011.
Given the magnitude of the external financing requirement, we expect the peso to end the year close to Ps37:US$1 (currently Ps36.13:US$1). External pressures will cause the peso to depreciate nominally by 4% in 2010 and 2011.
Weak export earnings and remittances inflows will lead to a current-account deficit of 5% of GDP in 2009, despite contracting imports. The deficit will widen to 6.2% in 2010 as import costs rise, before narrowing to 5.4% in 2011.

Capitalising on the growing disaffection of the electorate, the opposition PRD is developing into a real threat to the PLD for the 2010 mid-term elections.
Newspaper reports and the new head of the CDEEE, the state-run power utility, have highlighted the bloated state of the public bureaucracy.
After months of negotiation, the national minimum wage was officially raised, for the first time since 2007, by 15% in June. The real (inflation-adjusted) increase is closer to 2.5%, and the next adjustment is set for June 2011.
The Central Bank decided in late-August to cut its policy rate to 4%, after five months at 5%, as it is seeking to spur a more robust recovery in commercial? lending.
The consumer price index rose by 0.9% in August reflecting higher fuel and transport prices, although annual inflation remains negative at -0.5%.
The number of tourist arrivals fell year on year for the fourth consecutive quarter in April-June, although the decline appears to be bottoming out. Tourist arrivals increased slightly on an annual basis in July.

Source: Country Report

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