Statement by an IMF Staff Mission to the Dominican RepublicPress Release No. 09/311
September 18, 2008
Mr. Alejandro Santos, chief of the International Monetary Fund (IMF) mission to the Dominican Republic, issued the following statement today in Santo Domingo:
“A mission from the International Monetary Fund (IMF) visited Santo Domingo during the last two weeks for discussions in the context of the 2009 Article IV Consultation and negotiations of a multi-year program that could be supported by a Stand-By Arrangement. The mission met with Central Bank Governor Héctor Manuel Valdez, Minister of Finance Vicente Bengoa, and Minister of Economy Temístocles Montás; other members of the Economic and Social Cabinet; the private sector; civil society, and the international community.
“Discussions have been productive and significant progress has been made toward reaching agreement on a Stand-By Arrangement. Key elements of the authorities' economic program have already been agreed, and the authorities are expected to finalize drafting the letter of intent shortly. The mission returns to Washington to draft the report that will be discussed by the IMF Board. In the meantime, the mission will remain in close contact with the authorities, aiming at concluding with some technical aspects of the design of the program. Agreement on an IMF arrangement is expected to catalyze significant loans from other international financial institutions.
“The Dominican Republic has been affected by the global economic crisis. The lower external demand has reduced exports, tourism and remittances and precipitated a sharp deceleration of economic activity, increasing unemployment and deteriorating the poverty situation, which in turn lead to a notable fall in fiscal revenues. Real GDP is expected to grow between 0.5 and 1.5 percent in 2009 after growing 5.3 percent in 2008. The low domestic demand has maintained inflation subdued and is expected to end up on the low side of the Central Bank’s inflation range of 6 to 7 percent for 2009.
“The Central Bank has been able to timely reduce interest rates to increase liquidity and create conditions for higher credit in the economy. However, a severe decline of tax collections, coupled with limited financing access (heightened by the international financial crisis) has constrained the possibility to conduct an appropriate fiscal response, exacerbating the business cycle. At the same time, many challenges remain in the structural area, especially in the electricity sector, where large untargeted subsidies represent a heavy burden on the budget and reduced further the capacity of the government to react to the crisis.
“The mission would like to thank the authorities and the citizens of the Dominican Republic for their warmth and hospitality.”