Press Information Notice: IMF Concludes Article IV Consultation with the Dominican Republic
IMF News, September 17, 1997
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- Published: September 17, 1997
Background and Recent Economic Performance (1990–1996)
- Progress during 1990–95:
- Inflation reduced from 80 percent during 1990 to about 9 percent during 1995.
- Real GDP: after falling by almost 6 percent in 1990, grew on average by 4¼ percent a year in 1991–95.
- External current account swung from a deficit of over 2 percent of GDP in 1990 to a slight surplus in 1995.
- Gross official reserves remained at the equivalent of around one and one-half months of imports for most of this period.
- External public debt as a share of GDP was more than halved during 1990–95, to 33 percent.
- Unemployment rate declined from about 20 percent in 1991–93 to about 16 percent in October 1995.
- Economic performance in 1996:
- Inflation fell to 4 percent.
- Real GDP growth: 7 percent increase in real GDP growth.
- External current account balance: deficit equivalent to 1¾ percent of GDP.
- Consolidated public sector deficit (including quasi-fiscal operations) widened from about 1.1 percent of GDP in 1995 to 1.7 percent of GDP in 1996, largely financed by an accumulation of domestic arrears.
- Official exchange rate devalued by almost 10 percent in late December 1996; spread between official and interbank exchange rates reduced from an average of about 6 percent during 1996 to less than 1 percent so far in 1997.
- Real effective terms: peso appreciated by 2½ percent during 1996.
Policy Orientation under the New Administration (1996–1997)
- The administration of President Fernández (took office August 1996) advocates:
- Prudent macroeconomic policies.
- Structural reforms in taxes; the civil service and government administration; public enterprises; social security; public education; external trade; and financial intermediation.
- Mid-1997 legislative action:
- Congress approved a law to reform and privatize public enterprises.
1997 Outlook and Near-Term Projections
- Fiscal and monetary expectations for 1997:
- Current public expenditures expected to rise sharply due to large increases in government wages and pensions, and continued support to loss-making public enterprises.
- Due to strong increases in tax collections (mainly associated with increases in fuel taxes in late 1996 and ongoing improvements in tax administration) and expected cuts in capital expenditures, the consolidated public sector deficit could fall to near ½ percent of GDP.
- Credit policy tightened; growth of money and credit to the private sector expected to slow in line with expected growth of activity and prices.
- Biannual private wage increases expected to be broadly consistent with productivity increases, as well as price and exchange rate stability.
- Output, inflation, external sector in 1997:
- Output expected to grow by about 6½ percent in 1997, led by tourism related services and private construction activity.
- Inflation expected to increase to around 7½ percent, mainly reflecting increases in fuel taxes and the official exchange rate devaluation of late 1996.
- External current account deficit expected to remain below 2 percent of GDP.
- Anticipated overall balance of payments surplus reflecting increased private capital inflows; import coverage of gross international reserves expected to remain about constant.
Executive Board Assessment and Recommendations
- Commendations and concerns:
- Commended progress in strengthening public finances, tightening credit and wage policies, and implementing structural reforms.
- Expressed concern over weakening public finances and widening external current account deficit in 1996, and the continued low level of official international reserves.
- Welcomed signs of fiscal improvement in 1997.
- Key policy emphases and recommendations:
- Consolidate fiscal and monetary discipline, maintain prudent wage policies, and deepen structural reforms to reduce inflationary pressures, strengthen confidence, and improve growth prospects.
- Take further steps to raise revenues and cut expenditures to eliminate the remaining fiscal deficit for the year as a whole.
- Increase transparency of public sector operations by:
- Progressive elimination of domestic arrears.
- Transfer of the central bank’s quasi-fiscal operations to the central government budget.
- Modernization of budgetary and expenditure control processes.
- Fiscal adjustment, planned divestment of public sector assets, and increased resort to external borrowing at appropriate terms to allow:
- Reduction of domestic interest rates.
- Crowding-in of private investment.
- Some rebuilding of official international reserves.
- Secure congressional passage of modernization of the monetary and financial code to strengthen supervision and prudential regulation and improve monetary policy effectiveness.
- Consider establishing a fully unified flexible exchange rate policy given progress toward exchange rate unification and foreign exchange market stability; encourage greater exchange rate flexibility and rebuilding of official international reserves.
- Eliminate remaining quantitative import restrictions and narrow tariff dispersion; remove discrimination against imports in domestic indirect taxes.
- Resolve outstanding disputes on public sector external debt-service payments promptly.
- Pursue broad structural adjustment measures, including:
- Privatization of most public enterprises under the new restructuring law.
- Congressional approval of tax and trade reforms and comprehensive reform of the social security system.
- Accelerate restructuring of government and civil service.
- Grant concessions to the private sector for infrastructure development and services.
- Continue reform of public education to increase employment growth and improve economic opportunities.
- Improve timeliness and quality of economic and financial statistics.
Selected Economic and Financial Indicators
- Domestic economy (in percent)
- Change in real GDP:
- 1992: 8.0
- 1993: 3.0
- 1994: 4.3
- 1995: 4.8
- Prel. 1996: 7.3
- Unemployment rate:
- 1992: 20.3
- 1993: 19.9
- 1994: 16.0
- 1995: 15.8
- Prel. 1996: 16.7
- Consumer prices (end of year):
- 1992: 5.2
- 1993: 2.8
- 1994: 14.3
- 1995: 9.2
- Prel. 1996: 3.9
- External economy (in millions of U.S. dollars)
- National exports, f.o.b.:
- 1992: 637
- 1993: 600
- 1994: 737
- 1995: 905
- Prel. 1996: 962
- National imports, f.o.b.:
- 1992: 2,785
- 1993: 2,722
- 1994: 2,900
- 1995: 3,200
- Prel. 1996: 3,647
- Free trade zones (net):
- 1992: 467
- 1993: 613
- 1994: 698
- 1995: 733
- Prel. 1996: 841
- Tourism receipts:
- 1992: 1,029
- 1993: 1,235
- 1994: 1,418
- 1995: 1,552
- Prel. 1996: 1,755
- Transfers (net):
- 1992: 898
- 1993: 883
- 1994: 964
- 1995: 988
- Prel. 1996: 1,082
- Current account balance:
- 1992: -582
- 1993: -213
- 1994: 66
- 1995: 10
- Prel. 1996: -232
- Direct investment:
- 1992: 180
- 1993: 183
- 1994: 190
- 1995: 235
- Prel. 1996: 249
- Capital account balance:
- 1992: 490
- 1993: -408
- 1994: 118
- 1995: 236
- Prel. 1996: (no value reported)
- Gross official reserves:
- 1992: 646
- 1993: 259
- 1994: 390
- 1995: 375
- Prel. 1996: (no value reported)
- Current account balance (in percent of GDP):
- 1992: -6.5
- 1993: -2.2
- 1994: 0.6
- 1995: 0.1
- Prel. 1996: -1.7
- of which: non-oil sector:
- 1992: 4.6
- 1993: -1.0
- 1994: 2.5
- 1995: 5.5
- Prel. 1996: 5.1
- Change in real effective exchange rate (in percent)3:
- 1992: 2.1
- 1993: 6.1
- 1994: 4.1
- Financial variables (In percent2)
- Consolidated public sector balance (in percent of GDP):
- 1992: 1.6
- 1993: -0.8
- 1994: -4.5
- 1995: -1.1
- Prel. 1996: (no value reported)
- of which: quasi-fiscal losses:
- 1992: 0.0
- 1993: -0.4
- 1994: -0.6
- 1995: (no value reported)
- Prel. 1996: (no value reported)
- Change in broad money4:
- 1992: 27.1
- 1993: 28.1
- 1994: 8.9
- 1995: 19.5
- Prel. 1996: 18.6
- Interest rate5:
- 1992: 17.6
- 1993: 6.5
- 1994: 17.9
- 1995: 13.1
- Prel. 1996: 13.9
IMF Executive Board concluded the 1997 Article IV consultation with the Dominican Republic on August 21, 1997; Public Information Notice dated September 17, 1997.