Re: [A-List] Dominican Republic: possible default

["Anyutka" <annewilliamson@xxxxxxx>]

Coincidentally I just got off the phone with a lawyer friend in the DR.  He
reported that the country is quiet, that the govt walked out on IMF
negotiators last Friday - an event that has been repeated over and over
again for the last two years.  The people have taken due note of all the
Fedgov officials showing up in Santa Domingo, and they are not pleased -
much complaint on the radio and television call-in shows regarding US
interference.  Also said that Argentina's refusal to knuckle under has
emboldened many countries in Latin America, not just the DR.  My friend just
returned from nearly a month's-long, first time visit to Argentina and said
the country's tourism industry is booming, hotels running at a 100% capacity
as the Europeans, seeing a travel bargain, pour in.  As my friend, a Swede
by heritage, is married to a black woman and is raising her two teenage
neices with her (and who were on the trip), there was some concern
beforehand as people had told the wife Argentines didn't like blacks.  I
know she was really worried about this, though I assured her I just couldn't
see it being a problem for them from my experiences there.  (But what would
I know?  You practically have to put on sunglasses to even look at me, I'm
so white.) Well, now her favorite city is BA, and she and her neices had a
great time and fell in love with the Argentine people.  I was really happy
to hear of at least one improvement in one economic sector, but the
Argentine peso has appreciated significantly this year too, Kirchner does
appear to be a man who's met his moment, and his actions are inspiring
courage and determination beyond Argentina's borders.  -A.

PS  Deeply unpopular Meija has been playing electoral games, and people do
fear ballot tampering in May.

----- Original Message -----
From: "Michael Keaney" <michael.keaney@xxxxxx>
To: <a-list@xxxxxxxxxxxxxxxxxxx>
Sent: Thursday, February 12, 2004 9:12 AM
Subject: [A-List] Dominican Republic: possible default


> Dominican Republic might default
> By Jenny Wiggins
> Financial Times: February 12 2004
>
> The emerging markets could be on the verge of seeing their first debt
> default of 2004, reminding investors that despite extensive reforms, some
> emerging market countries are still vulnerable to serious structural
> problems.
>
> The Dominican Republic, which has some $1.8bn in private external debt, is
> teetering on the brink of default after failing to make an interest
payment
> on its debt last month. The country has since made the $27m payment but
that
> has not stopped the credit ratings agencies from lowering their ratings to
> just above default.
>
> Standard & Poor's dropped its rating on the country to CC, two notches
above
> default, while Moody's cut it to B3 and Fitch put it at CCC+.
>
> The Dominican Republic's problems started last year with the collapse of
> Banco Internacional (Baninter), its second-biggest commercial bank. The
bank
> suffered losses of some $2.2bn that the government blamed on fraud. The
> banking crisis precipitated a sharp fall in the Republic's currency, the
> peso, and inflation soared.
>
> As the country's difficulties mounted, the price of its global bonds slid
> from more than 90 cents in the dollar, when the bonds were issued in late
> 2001 and early 2003, to less than 70 cents.
>
> "An inconsistent policy mix on the part of the Dominican government, with
> expansionary fiscal and monetary policy, led to a loss of confidence,"
said
> Graham Stock, emerging markets strategist at JP Morgan.
>
> The country has also been dealing with serious political and social
issues.
> Inflation is running at about 45 per cent and unemployment is close to 17
> per cent.
> Economists say the Dominican Republic's travails show that some emerging
> market countries are still vulnerable to banking scandals.
>
> Such scandals are less common in Latin America than in the past, due to
> extensive industry reforms that have resulted in better banking
> capitalisation, transparency and supervision. But they are still possible
in
> Asia and Eastern Europe, where banks have not undergone such widespread
> reforms, said Arturo Porzecanski, chief economist for emerging markets at
> ABN Amro.
>
> "It's a reminder that structural reforms starting with the banking
> industries are a must," he said.
>
> The government is trying to ward off a default by rescheduling its debt
> obligations with the Paris Club, an informal group of creditors that helps
> to resolve payment difficulties of debtor nations. The Dominican Republic
> has total bilateral obligations (debt owed by it to other countries) of
> about $430m this year, according to JP Morgan.
>
> Analysts are waiting to see if the Paris Club will demand that the
Republic
> reschedules all of its external debt - including its private debt. If it
> does, this could amount to a default, analysts say. The country must also
> successfully pass an IMF loan review.
>
> Meanwhile, the negotiations are taking place ahead of a presidential
> election in May, which could make it difficult for the government to
> implement the fiscal reforms required by its creditors.
>
> "No matter what, the government's in a very difficult situation," said
> Richard Francis, sovereign debt analyst at Standard & Poors.
>
> Still, analysts say that the current president, Hipolito Mejia, has close
> ties to the Bush administration and should receive backing from Washington
> in its negotiations with creditors.
>
> "The IMF is likely to remain flexible," said Aryam Vazquez, Dominican
> Republic economist at IDEAglobal.
>
> The Dominican Republic's bonds, with their relatively high yields, have
been
> attractive since Argentina's default as emerging market investors have
> sought to diversify their exposure in Latin America.
>
> "It was a diversification play," said Gary Kleiman, senior partner at
> investment consultancy firm Kleiman International. "Everybody's had a
piece
> of this."
>
> A potential default by the Dominican Republic is not expected to have
> serious repercussions for other emerging market investors due to the
> relatively small amount of the debt outstanding.
>
> The Republic accounts for only 0.3 per cent of JP Morgan's emerging
markets
> index, the EMBI+, and would not be "contagious", according to investors.
>
>