Country Report Dominican Republic September 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 in the first half of the year and we expect a fiscal deficit of 2.4% of GDP in 2009 and 2.2% in 2010. Financing constraints will oblige spending adjustments, preventing an even wider deficit.
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 continue to be weak through most of 2009. Growth will rise to 2.5% in 2010.
Annual inflation will remain negative in the coming months, but will end the year at 5% owing to base effects and higher oil prices. We expect inflation to average 5.6% in 2010.
Given the magnitude of the external financing requirement, we expect the peso to end the year close to Ps37:US$1 (currently Ps36.14:US$1). Pressures in 2010 will lead to a nominal depreciation of 4.5%.
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 6.8% in 2010 as import costs rise faster than export earnings.

After mounting criticism relating to revelations of nepotism and widespread mismanagement, Mr Fernandez replaced Rhadames Segura, the president of the CDEEE, the state-owned power utility, in August.
In late August Mr Fernandez dispatched a delegation to meet representatives from the IMF in Washington to discuss a new agreement that could release around US$900m in multilateral financing.
The Central Bank has announced that the IMF will be granting the government additional special drawing rights (SDRs) worth US$275m.
According to the Central Bank, GDP grew by 1.4% in the first half of 2009. But the figure has come under question for overstating the economic performance of communications and financial intermediation.
Trade figures for the first half of 2009 reveal that trade flows fell sharply. Export earnings dropped 27% while import costs fell by 32%.

Source: Country Report

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