Press Release No. 10/41

Press Release No. 10/41
February 16, 2010

Mr. Alejandro Santos, chief of the International Monetary Fund (IMF) mission to the Dominican Republic, issued the following statement today in Santo Domingo:

“An IMF mission visited Santo Domingo during the last two weeks for discussions under the first review of the Stand-By Arrangement (SBA), approved by the IMF Executive Board in November 2009 (Press Release No. 09/393). The mission met with Central Bank Governor Héctor Valdez, Minister of Finance Vicente Bengoa, Minister of Economy Temístocles Montás, Vice-President of the Public Electricity Corporation Celso Marranzini, other members of the Economic and Social Cabinet, senior government officials, the private sector, and the international community.

“The mission made significant progress in the discussions and will conduct the final assessment of the review in Washington in the coming weeks. An agreement in principle on a letter of intent (LOI) for policies in 2010—in line with the program—has been reached. While there are some limited deviations in the targets for end-2009, the policies originally envisaged in the program for 2010 are maintained. Signing of the LOI is expected during March 2010.

“Performance under the current SBA has been largely positive. While the economy remains weak, there is evidence of a rebound in activity in the last several months of 2009 and it is estimated that real GDP grew 3.5 percent for the whole year. There is no evidence of price pressures in the economy. Inflation closed at 5.8 percent by the end of 2009 (below the lower end of the Central Bank’s target), and core inflation (excluding food and fuels) closed at 3 percent. The exchange rate has remained stable. The international community’s efforts to reconstruct Haiti—which is expected to count with the active participation of the Dominican Republic—may increase net exports going forward. The economy has enough unutilized capacity to deal with this potential increase in demand.

“The fiscal deficit of the consolidated public sector reached almost 4.5 percent of GDP in 2009, in line with the authorities’ economic program, while the fiscal deficit of the Central Administration amounted to 3.5 percent of GDP, which is 0.4 percent of GDP higher than programmed due mostly to higher electricity subsidies and revenue shortfalls. The deviation of the Central Administration’s deficit was offset by improvements in the financial position of the rest of the public sector.

“Monetary conditions improved significantly. Following an earlier contraction, new lending to the private sector rebounded at the end of 2009 and expanded by 8.5 percent for the year as a whole. After the approval of the SBA, significant disbursements from the World Bank and the Inter-American Development Bank in December 2009 led to a large increase in the level of international reserves of the Central Bank by the end of the year.

“Two quantitative performance criteria for end-December 2009 under the IMF-supported program were not observed: (i) the limit on the fiscal deficit of the Central Administration; and (ii) clearance of arrears to electricity generators. The authorities are taking corrective actions to address temporary program deviations. With the approval of the 2010 budget, the authorities are implementing policies to ensure that fiscal targets are within the program limits, and taking measures to eliminate arrears with electricity generators.

“All structural benchmarks under the program were met. The authorities designed a strategy of reforms in the electricity sector to reduce indiscriminate subsidies and improve service, and are working on the definition of quantitative targets for its implementation. Also as agreed under the program, the coverage of the conditional cash transfer program (Solidaridad) designed to buffer the poorest from the worst effects of the economic downturn was increased to cover 70,000 new families living in extreme poverty. The authorities are working to meet structural benchmarks for 2010 and, in some cases, are using technical assistance from the IMF for this purpose.

“The mission would like to thank the authorities and the citizens of the Dominican Republic for their warmth and hospitality.”