Press Release No. 11/221

Press Release No. 11/221
June 7, 2011

An International Monetary Fund (IMF) mission led by Mr. Alejandro Santos visited Santo Domingo during May 24-June 7 to continue discussions under the fifth and sixth reviews of the Stand-By Arrangement (SBA) approved in November 2009 (see Press Release No. 09/393).The mission met with President Leonel Fernández, Vice-Presidente Rafael Alburquerque de Castro, as well as members of the Economic Cabinet, senior government officials, congressmen, representatives of the private sector, and union leaders. At the conclusion of the visit, Mr. Santos issued the following statement:

“Discussions have been very productive, and key measures for the rest of 2011 have been agreed to ensure that the government’s program remains on track. Significant progress has been made in reaching agreement on a letter of intent. The mission expects to conduct the final assessment of the fifth and sixth reviews in Washington in the coming weeks.

“The macroeconomic situation continues to be positive in 2011 despite the significantly higher commodity prices. Although economic growth has moderated, as expected, from the rapid pace of 2010, real Gross Domestic Product (GDP) expanded by 4.3 percent in the first quarter of 2011 (year-on-year). Headline inflation, which remained within the Central Bank’s target band in 2010 (6–7 percent), has increased to 8 percent (year-on-year) in May 2011, mainly due to the food and fuel price increases in international markets.

“While program performance continues to be broadly satisfactory, several performance criteria for end-December 2010 and end-March 2011 were not met—especially those related to the electricity sector, where larger subsidies deteriorated fiscal performance. Most structural measures have been implemented, some with a delay.

“The government reiterated its commitment to the objectives and policies of its economic program which envisages a tightening of policies for 2011. Economic growth is expected to be between 5 and 5.5 percent, and the end-year inflation is projected to be in the 6–7 percent range, while fiscal policy aims at a consolidated public sector deficit of 3 percent of GDP, as envisaged in the 2011 budget.

“The increase in oil prices has led to significantly larger-than-programmed electricity subsidies for 2011. The authorities have reacted by adjusting electricity tariffs 8 percent effective in June 2011 and, cutting non-social spending by 12 percent since April 2011. In addition, they have sent to Congress a number of tax measures to reverse the declining trend in tax collections.

“The Central Bank has raised the policy rate by 275 basis points since the last quarter of 2010, increasing it from 4 to 6.75 percent. The tighter stance is consistent with the economy operating at potential and needed to contain spillover effects on inflation from the higher food and fuel prices.

“As part of a new initiative proposed at a Conference in Oslo, the mission began work on a pilot project to strengthen collaboration with the International Labor Organization towards creating conditions for higher employment and the design of policies to promote employment-creating growth.

“The mission would like to thank the authorities and citizens of the Dominican Republic for their warmth and hospitality. The mission is saddened by the sudden demise of our good friend Mr. Julio Estrella, the Dominican Republic Advisor to the IMF Executive Director, on June 2 in Santo Domingo. It offers its deepest condolences to Mr. Estrella’s family, the staff of the Central Bank of the Dominican Republic, friends and colleagues. He was an extraordinary person and an excellent professional who worked tirelessly for his beloved country.”