IMF Executive Board Completes Fifth and Sixth Reviews under Stand-By Arrangement with the Dominican Republic and Approves US$57.5 Million Disbursement and Extension of ArrangementPress Release No. 07/25
February 15, 2007
The Executive Board of the International Monetary Fund (IMF) on February 14, 2007 completed the fifth and sixth reviews of the economic performance of the Dominican Republic under the Stand-By Arrangement and approved the disbursement of SDR 38.5 million (about US$57.5 million), bringing total disbursements under the arrangement to SDR 283.7 million (about US$423.4 million).
The Executive Board also completed a review of the country's financing assurances and granted the authorities' requests for waivers of performance criteria related to the fiscal and structural reform agenda. At the same time, the Executive Board approved the extension of the 28-month arrangement by eight months to January 2008 and the rephasing of disbursements to bolster the credibility of the authorities' commitments in 2007.
The Stand-By Arrangement with the Dominican Republic was approved January 31, 2005 (see Press Release No. 05/18) for SDR 437.8 million (about US$653.3 million).
Following the Executive Board discussion on February 14, 2007, Murilo Portugal, Deputy Managing Director and Acting Chairman, made the following statement:
"Macroeconomic performance under the Dominican Republic's economic program, supported by the Stand-By Arrangement, has remained strong. During 2006, the economy registered a 10.7 percent rate of growth, inflation was reduced to 5 percent, and buoyant external conditions allowed the central bank to further accumulate international reserves. There were delays in structural reforms and slippages in fiscal policy, although their impact was contained by a prudent monetary policy stance. Strengthening medium-term growth prospects and reducing vulnerabilities will require that the authorities adhere to the fiscal program and build on the progress made thus far in implementing their structural reform agenda, particularly following the approval of legislation reforming fiscal management practices.
"The 2007 fiscal program provides a good basis for placing public debt-to-GDP on a firmly declining path. The fiscal adjustment is expected to be achieved through a balanced mix of revenue and expenditure measures, which will also ensure that priority social programs in health and education remain protected. The authorities have recently put in place a tax package aimed primarily at rationalizing excises and strengthening revenue administration. On the expenditure side, the authorities will reduce energy subsidies and maintain strict control over current expenditures. Adhering to the fiscal targets will be an important challenge ahead of next year's presidential elections.
"The electricity sector continues to be an area of concern, and the authorities are determined to press ahead with strong measures to reduce its deficit and avoid the need for additional budgetary support. The planned introduction of legislation that criminalizes fraud will be a significant milestone to deal decisively with the problems of theft and non-payment, and to raise the cash recovery indices of electricity distribution companies. It will be desirable to allow electricity prices to adjust in response to changes in costs.
"The central bank intends to strengthen monetary policy management and communication further to contain inflation in the 4-6 percent range during 2007. A comprehensive strategy to recapitalize the central bank has been developed, aimed at gradually reducing the bank's quasi-fiscal deficit. The planned introduction of legislation to strengthen the finances of the central bank, as well its independence and accountability, will further improve the conduct of monetary policy.
"On the structural area, the authorities' program seeks to consolidate the progress made thus far in strengthening fiscal and financial sector institutions. The recent enactment of legislation to overhaul fiscal management procedures and centralize fiscal functions is an important step forward. Ensuring the orderly implementation of the new fiscal management framework will require the timely issuance of enabling regulations for the recently approved laws, and concrete steps taken towards establishing a single treasury account.
"Considerable progress has been made in strengthening the banking system. However, further improvements in supervision are required to fully implement the new regulatory framework for the banking system, particularly putting in place an effective consolidated and risk-based supervision, as this will be critical to ensure broad oversight in the banking sector," said Mr. Portugal.