Press Release: IMF Approves Two-Year US$600 Million Stand-By Arrangement for the Dominican Republic
IMF News, August 29, 2003
Source details
- Canonical URL
- Press Release: IMF Approves Two-Year US$600 Million Stand-By Arrangement for the Dominican Republic
Other formats
Bibliographic details
- Published: August 29, 2003
Approval and program financing
- Executive Board approved a two-year SDR 437.8 million (about US$600 million) Stand-By Arrangement to support the country's economic program through August 2005.
- Approval opens the way for the release of SDR 87.6 million (about US$120 million) under the arrangement.
- Dominican Republic joined the IMF on December 28, 1945; its quota is SDR 218.9 million (about US$300 million).
- Outstanding use of IMF credits totals SDR 4.96 million (about US$6.8 million).
Macro context and recent economic developments
- After a decade of strong growth and broad stability, the economy faced major challenges due to:
- Failure of a large bank because of fraud, hurting confidence in the banking system.
- Adverse effects of a succession of external shocks (including the rise in oil prices and the events of September 11, 2001).
- Economic outcomes and developments cited:
- Real GDP growth averaged 6 percent in the 1990s.
- Exports and tourism receipts began falling in the second half of 2001.
- Public sector deficit widened by a half-percentage point to 2.6 percent in 2002.
- Credit expanded by 20 percent in 2002.
- Real GDP growth rose to 4 percent in 2002.
- Peso depreciated by 20 percent in 2002; inflation doubled to 10 percent.
- Central bank lost about half of its foreign reserves.
- Baninter failure in spring 2003: deposits fell some 80 percent; central bank financed payout and kept Baninter open to prevent systemic run.
- Problems extended to Bancrédito and Banco Mercantil.
- Central bank assistance contributed to a near doubling in public debt.
- Real GDP in the first half of 2003 fell by about 1 percent, year-on-year.
- Peso fell by 42 percent in the first seven months of 2003.
- 12-month inflation rose to nearly 30 percent by July 2003.
Program objectives and policy pillars (as stated by Agustin Carstens)
- Primary program aims:
- Restore confidence in the banking system.
- Reverse recent deterioration in public finances.
- Implement tight monetary policy to reduce inflation and immediate pressures on the currency.
- Banking sector strategy (four planks):
- First plank: already implemented—resolving problems of identified weak banks.
- Second plank: internationally-assisted audits of all banks to assess the banking system as a whole and identify further necessary measures.
- Third plank: put in place a legal and regulatory framework to deal with systemic banking problems.
- Fourth plank: enhancement of prudential regulations and supervision.
- Fiscal strategy:
- Objective to raise the fiscal primary surplus over the next three years to allow a gradual reduction in the public debt ratio over the medium term.
- Near-term fiscal effort relies on expenditure compression and temporary revenue measures.
- Broader reform to follow: reform of the tax system and of spending, as well as asset sales to reduce public debt.
- Improved debt management: greater emphasis on the domestic market and less reliance on foreign currency debt.
- Monetary and exchange rate policy:
- Monetary restraint to contain pressures on the currency and inflation.
- Strengthen flexible exchange rate regime with full unification of the dual exchange rate markets expected by end-2003 (full unification by end-December would eliminate multiple currency practices arising from a divergence of more than 2 percent at any given time between the official and market exchange rates).
- Reducing inflation will be a key objective of monetary policy.
- Structural and social policies:
- Medium-term priorities include trade liberalization and elimination of infrastructural bottlenecks (especially in the power sector) to boost growth.
- Efforts to reduce poverty via improvements in efficiency and targeting of social programs.
- Authorities sought to avoid cuts in social programs; low-income households effectively exempted from planned increases in electricity prices.
Program summary: projections and targets
- Real GDP is expected to:
- Contract by 3 percent in 2003.
- Recover by 0.5 percent in 2004.
- Inflation is projected to:
- Reach 35 percent in 2003.
- Recede to single digit levels in 2004.
- External sector:
- With domestic demand weak, the external current account balance is projected to shift into surplus in 2003-04.
- Fiscal targets and debt service:
- Cost of servicing the debt will more than triple to 4½ percent of GDP in 2003 and rise further to nearly 6 percent of GDP in 2004.
- Program envisages measures to contain the combined public sector deficit to 3.5 percent of GDP in 2003 and 2.5 percent of GDP in 2004.
- Authorities determined to keep expenditure under control.
Selected economic and financial indicators (annual or end-period figures as presented)
- Real GDP (annual percentage changes): 1999: 7.8; 2000: 7.3; 2001: 2.9; 2002: 4.1; 2003 (Proj.): -3.0.
- Real GDP per capita (annual percentage changes): 1999: 6.1; 2000: 5.4; 2001: 1.4; 2002: 2.3; 2003 (Proj.): -4.7.
- Consumer price index (end of period): 1999: 5.1; 2000: 9.0; 2001: 4.4; 2002: 10.5; 2003 (Proj.): 35.0.
- Unemployment rate (in percent): 1999: 13.1; 2000: 13.9; 2001: 15.6; 2002: 16.1; 2003: ...
- Gross domestic investment (in percent of GDP): 1999: 24.2; 2000: 24.0; 2001: 23.1; 2002: 23.2; 2003 (Proj.): 21.7.
- Gross national savings (in percent of GDP): 1999: 21.8; 2000: 18.8; 2001: 19.7; 2002: 22.7; 2003 (Proj.): 21.7.
- Banking system: Liabilities to private sector (annual percentage changes): 1999: 24.3; 2000: 11.7; 2001: 21.3; 2002: 13.2; 2003 (Proj.): 44.6.
- Lending interest rate (period average): 1999: 25.3; 2000: 26.8; 2001: 24.6; 2002: 26.1; 2003 (Proj.): 39.4.
- Central government primary balance (in percent of GDP): 1999: -2.5; 2000: -1.3; 2001: -1.1; 2002: 1.9; 2003 (Proj.): ...
- Central government overall balance (in percent of GDP): 1999: -3.2; 2000: -2.1; 2001: -1.9; 2002: -2.2; 2003 (Proj.): -0.4.
- Consolidated public sector (in percent of GDP): 1999: -1.7; 2000: -0.8; 2001: -1.0; 2002: 1.1; 2003: -2.0; 2004 (Proj.): -2.6; 2005 (Proj.): -3.5.
- Balance of payments (in millions of U.S. dollars):
- Current account: 1999: -429; 2000: -1,026; 2001: -752; 2002: -875; 2003 (Prel.): 159.
- Merchandise trade balance: 1999: -2,904; 2000: -3,742; 2001: -3,503; 2002: -3,699; 2003 (Prel.): -3,076.
- Exports: 1999: 5,137; 2000: 5,737; 2001: 5,276; 2002: 5,183; 2003 (Prel.): 5,525.
- Imports: 1999: -8,041; 2000: -9,479; 2001: -8,779; 2002: -8,883; 2003 (Prel.): -8,602.
- Services and transfers (net): 1999: 2,475; 2000: 2,716; 2001: 2,751; 2002: 2,824; 2003 (Prel.): 3,235.
- Of which: interest: 1999: -180; 2000: -201; 2001: -196; 2002: -215; 2003 (Prel.): -272.
- Capital and financial account: 1999: 1,068; 2000: 1,580; 2001: 1,724; 2002: 952; 2003 (Prel.): 1,318.
- Foreign direct investment: 1999: 1,338; 2000: 953; 2001: 1,079; 2002: 961; 2003 (Prel.): 621.
- Change in gross international reserves (-=increase): 1999: -194; 2000: 70; 2001: -519; 2002: 526; 2003 (Prel.): -155.
- Current account (in percent of GDP): 1999: -5.2; 2000: -3.4; 2001: -4.0; 2002: 1.0; 2003 (Prel.): ...
- Exports (in US$, annual percentage change): 1999: -8.4; 2000: -1.8; 2001: 6.6; 2002: ...
- Imports (in US$, annual percentage change): 1999: 6.3; 2000: -7.2; 2001: 1.2; 2002: ...
- Terms of trade (annual percentage change): 1999: -4.8; 2000: -6.0; 2001: 0.8; 2002: 0.9; 2003 (Prel.): -0.3.
- Real effective exchange rate (end-period, depreciation -): 1999: 3.3; 2000: 5.9; 2001: 2.4; 2002: -16.7; 2003 (Prel.): ...
- International reserve position and external debt:
- Gross official reserves: 1999: 706; 2000: 637; 2001: 1,155; 2002: 630; 2003 (Prel.): 785.
- (in months of imports): 1999: 1.3; 2000: ...
- Net official reserves: 1999: 547; 2000: 442; 2001: 962; 2002: 376; 2003 (Prel.): 347.
- Outstanding external public debt, in percent of GDP: 1999: 21.0; 2000: 18.6; 2001: 19.6; 2002: 20.9; 2003 (Prel.): 33.8.
- Total debt service ratio (in percent of exports of goods & services): 1999: 5.0; 2000: 5.2; 2001: 7.1; 2002: 8.0; 2003 (Prel.): 8.6.
- Gross reserves/short-term debt (in percent): 1999: 71.1; 2000: 52.4; 2001: 79.7; 2002: 46.8; 2003 (Prel.): 58.5.
Source: Press Release No. 03/147, IMF, August 29, 2003.