[A-List] Dominican Republic Signs IMF Agreement

["Anyutka" <annewilliamson@xxxxxxx>]

Riots within a year, no doubt. Apparently, the US
is pushing them to dollarize.  -A.

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DR1 Daily News -- Thursday, 12 February 2004


1. IMF agreement signed

The stalled agreement between the Dominican government and the International
Monetary Fund (IMF) is officially back on track. After a pause of over five
months, a revised agreement has been negotiated and was signed yesterday.
The first disbursement under the new terms of the deal will amount to US$66
million, with the power sector earmarked as a top-priority recipient. The
original agreement with the IMF, signed in August last year, totalled US$657
million. To date, a sum of US$197 million has been disbursed. The original
standby agreement was interrupted when the government reacquired two of the
privatized electricity distribution companies, Edesur and Edenorte, without
the Fund's awareness. The agreement with the IMF is designed to restore
confidence in the banking sector and the country's general economic
policies. The IMF predicts a negative growth of 1% in GDP over the coming
year, as well as an inflation rate of 14%. In its statement, the IMF says:
"In completing the review, the Executive Board approved the Dominican
Republic's request to waive the non-observance of structural performance
criteria regarding the approval of by-laws of the Monetary and Financial
Law, the approval of the law for systemic bank resolution, the approval of
the 2004 budget law, and the unification of the foreign exchange market;
four quantitative performance criteria for the end of December 2003 on
fiscal and monetary targets; and the continuous performance criteria
concerning accumulation of external arrears, exchange rate restrictions, and
multiple currency practices. The Executive Board also approved a request to
waive the applicability of the quantitative performance criteria for the end
of December 2003 on the contracting of external debt, as final data on this
criterion was not yet available.. The Dominican authorities, for their part,
committed themselves to "taking all necessary measures" to ensure the
success of the revised accord. In its letter of intent, the government
states that since the original signing of the agreement they have introduced
"a number of measures and a wide-ranging economic program within the
framework of the original standby agreement, with the aim of restoring
confidence in an economy that has suffered a series of external and internal
blows." The letter, signed by Central Bank Governor Jose Lois Malkun,
Finance Minister Rafael Calderon and Technical Secretary to the Presidency
Carlos Despradel, continues by saying that they had continued to confront
the banking sector's problems which caused the crisis in early 2003, by
making a significant effort to restrict public spending and taking measures
to ensure a free, unified and fully-functioning exchange market.
For the full text of the IMF press release, go to
http://www.imf.org/external/np/sec/pr/2004/pr0423.htm.

2. Hipolito's hopes for IMF agreement
President Hipolito Mejia said that he hoped the re-establishment of the IMF
agreement would help restore peace and calm in the Dominican Republic. He
described the agreement as an achievement reached by the government in spite
of all its detractors within the opposition PLD party, which according to
the President tried to block the path of the agreement at every legal turn.
"Another party, which is opposed to everything, didn't approve anything."
The government is reported to have agreed on a rigorous accounting system
with daily, weekly, bi-weekly and monthly reports on the progress of
supervision of economic reforms.

3. Leonel on IMF and dollarization
Opposition Presidential candidate, the PLD's Leonel Fernandez, said that the
IMF agreement was "the only way out" for the country. He described the pact
as "the lesser of two evils" and compared it to "open heart surgery without
an anaesthetic, with the only other option being death. Speaking in New
York, he expressed firm opposition to the idea of a dollarized economy,
asking, "Where would the dollars come from?" Fernandez referred to the
examples of El Salvador and Ecuador, both of which have dollarized their
economies. El Salvador did so at a time of economic growth, and has had a
successful experience. By contrast, the Ecuadorian experience was fraught
with problems because it was implemented at a time of economic crisis. He
said that "changing currency mid-crisis gives the people a sense of failure
and a loss of sovereignty." Fernandez furthermore attributed the Dominican
economic crisis to unrestrained government spending and the increase in
internal and external debts. He said the solutions were to reduce public
spending and cap public credit in the private national banking sector. Once
this has been achieved, according to the former President, "much of the US$2
billion which left the economy will return, and this in turn will reduce the
exchange rate by several points."

4. More comments on IMF Agreement Part II
Diario Libre's editorial reaction to the resumption of the IMF agreement is
terse: "Tough guy needed," it states in reference to President Hipolito
Mejia's nickname "El Guapo." Economic confidence is a main ingredient in the
process of recovery, according to the writer. "Maybe President Hipolito
Mejia will prove that he is really a tough guy and show us that he loves
this country over and above re-election."
El Caribe's main editorial speaks of the "bitter pill" that is the IMF. It
reminds readers that this is no bed of roses: "We will have to renegotiate
debt repayments with the Paris Club, freeze and reduce public investment,
capitalize the banks, increase electricity costs, remove the subsidy from
domestic gas, sell state assets and implement fiscal reform in the second
half of the year." While tax reform will be particularly hard to swallow,
the projected effects are encouraging: a reduction in the inflation rate to
14% and a negative growth of just -1%. The writer defines this phenomenon as
"stagnation with reduced deterioration in employment and economic activity."
He goes on to warn that "there is no room for improvisation" and that the
agreement will have to be followed "to the letter," if it is to avoid a
subsequent suspension, something which, according to the columnist, would
"provoke a disaster of incalculable proportions." The final warning deals
with the government having to overcome great temptation to increase
electorally-motivated public spending. The writer's advice is that "the best
way of winning votes is to govern well, and this includes fulfilling the
terms of the IMF agreement. Anything else would be window-dressing
(espejismo)". The IMF's letter of intent in its entirety is published in
this morning's edition of Listin Diario, El Caribe and Hoy newspapers.

<SNIP>

7. Poll predicts landslide for Leonel
An opinion poll of Dominican voters conducted by Penn, Schoen and Berland
Associates, Inc. from 21 to 24 January predicts an overwhelming victory for
the PLD's Leonel Fernandez in the first round of the Presidential election
this May. PRSC candidate Eduardo Estrella is given 16% and President
Hipolito Mejia, as the candidate for the ruling PRD, just 13% support. Last
September, a poll by the same company put Fernandez' majority at 58%,
Mejia's at 20% and Estrella's at 14%. Only 6% of Dominican voters are
undecided, according to the numbers issued yesterday.
In a second-round scenario, the poll shows Fernandez defeating runner-up
Mejia 73% to 16% and Estrella 67% to 23%.
As can be seen in the results, published in local newspapers as paid
advertisements,
65% of those polled dispute campaign propaganda by President Mejia
re-election supporters that alleged many more public works carried out in
the provinces during his government than during the Fernandez
administration, which, according to them, concentrated solely on Santo
Domingo.
Regarding which government was more honest, that of Mejia or that of
Fernandez, 14% say Mejia, 73% say Fernandez. When asked if Mejia had
improved government programs to fight poverty, 79% of those polled said
'no', versus 18% who said 'yes'. Likewise, 79% feel that Mejia has abused
power, while 19% said he had not.
The same poll shows that Mejia's contenders for the PRD ticket are not
faring much better in voter popularity at this point in time. While Mejia
received a 13% favorable rate and 86% unfavorable rating, contenders
Vice-President Milagros Ortiz Bosch received a 19% favorable and 78%
unfavorable rating; and former Tourism Minister Rafael Subervi Bonilla
tallied 18% favorable and 79% unfavorable.


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