Fitch Comments on the IMF's Rev of Dominican Republics' Stand-By Arrangement
NEW YORK--(BUSINESS WIRE)--02/12/2004--Fitch Ratings, the international rating agency, today commented on the completion of the International Monetary Fund's first review of the Dominican Republic's Stand-By Arrangement.
The completion of the first review results in the release of an additional US$66 million under the program, bringing total disbursements to about US$197 million to date. However, the government had to request the approval of waivers with respect to various structural and performance criteria it was not able to meet by year-end 2003.
While Fitch welcomes this development as a positive step, we remain concerned about the implementation risk of the Stand-by program with the IMF due to pre-electoral politics. This, in turn could lead to more multilateral disbursement delays. With US$504 million in public sector medium and long-term debt amortizations due this year (versus an estimated US$260 million in reserves), the Dominican Republic can ill afford to lose multilateral financing.
The government projects external financing needs of close to US$1 billion in 2004. Although multilateral and bilateral creditors are expected to disburse close to US$700 million, this still leaves a financing gap of US$300 million. The government will be approaching the Paris Club to seek a rescheduling to close this gap. Bilateral debt service includes US$341 million and US$89 million in principal and interest payments, respectively during 2004.
Whether the expected Paris Club rescheduling leads to the enforcement of the 'comparability of treatment' clause, and thus the rescheduling of bond debt as well, will likely depend upon the extent to which both principal and interest repayments are included. As a rescheduling of just principal payments could sufficiently close the Dominican Republic's funding gap and perhaps circumvent the 'comparability of treatment' clause, Fitch believes that this could limit the potential for a bond restructuring through this mechanism at this time. However, given recent comments by leading presidential candidate Leonel Fernandez with respect to seeking debt relief from private creditors, some type of restructuring in the future cannot be completely ruled out. Fitch would view any future restructuring that imposes a material loss in NPV terms to bondholders a default event.
Nevertheless, there are serious risks with respect to continued timely debt service. Since Fitch's last rating action, the government has cured the US$27 million coupon payment on the 2013 bond within the grace period.
Fitch will continue to monitor the Dominican Republic's progress under the Stand-by Arrangement with the IMF. Any additional disbursement delays could make meeting debt service requirements difficult. Continued pressures on the sovereign's slim international reserve position, as well as new developments in the electricity and/or financial sectors that could result in additional public finance pressures would also be negative for the ratings.
Conversely, successful reviews of the country's Stand-by Arrangement with the IMF and a smooth transition to the next government could ease pressures on the ratings going forward. Until there is more clarification on the extent of Paris Club rescheduling and the enforcement of the 'comparability of treatment' clause, the ratings will remain on Rating Watch Negative.
CONTACT:Fitch Ratings, New York Theresa Paiz Fredel, 212-908-0534 Roger M. Scher, 212-908-0240 James Jockle, 212-908-0547 (Media Relations)
SOURCE: Fitch Ratings
NEW YORK--(BUSINESS WIRE)--02/12/2004--Fitch Ratings, the international rating agency, today commented on the completion of the International Monetary Fund's first review of the Dominican Republic's Stand-By Arrangement.
The completion of the first review results in the release of an additional US$66 million under the program, bringing total disbursements to about US$197 million to date. However, the government had to request the approval of waivers with respect to various structural and performance criteria it was not able to meet by year-end 2003.
While Fitch welcomes this development as a positive step, we remain concerned about the implementation risk of the Stand-by program with the IMF due to pre-electoral politics. This, in turn could lead to more multilateral disbursement delays. With US$504 million in public sector medium and long-term debt amortizations due this year (versus an estimated US$260 million in reserves), the Dominican Republic can ill afford to lose multilateral financing.
The government projects external financing needs of close to US$1 billion in 2004. Although multilateral and bilateral creditors are expected to disburse close to US$700 million, this still leaves a financing gap of US$300 million. The government will be approaching the Paris Club to seek a rescheduling to close this gap. Bilateral debt service includes US$341 million and US$89 million in principal and interest payments, respectively during 2004.
Whether the expected Paris Club rescheduling leads to the enforcement of the 'comparability of treatment' clause, and thus the rescheduling of bond debt as well, will likely depend upon the extent to which both principal and interest repayments are included. As a rescheduling of just principal payments could sufficiently close the Dominican Republic's funding gap and perhaps circumvent the 'comparability of treatment' clause, Fitch believes that this could limit the potential for a bond restructuring through this mechanism at this time. However, given recent comments by leading presidential candidate Leonel Fernandez with respect to seeking debt relief from private creditors, some type of restructuring in the future cannot be completely ruled out. Fitch would view any future restructuring that imposes a material loss in NPV terms to bondholders a default event.
Nevertheless, there are serious risks with respect to continued timely debt service. Since Fitch's last rating action, the government has cured the US$27 million coupon payment on the 2013 bond within the grace period.
Fitch will continue to monitor the Dominican Republic's progress under the Stand-by Arrangement with the IMF. Any additional disbursement delays could make meeting debt service requirements difficult. Continued pressures on the sovereign's slim international reserve position, as well as new developments in the electricity and/or financial sectors that could result in additional public finance pressures would also be negative for the ratings.
Conversely, successful reviews of the country's Stand-by Arrangement with the IMF and a smooth transition to the next government could ease pressures on the ratings going forward. Until there is more clarification on the extent of Paris Club rescheduling and the enforcement of the 'comparability of treatment' clause, the ratings will remain on Rating Watch Negative.
CONTACT:Fitch Ratings, New York Theresa Paiz Fredel, 212-908-0534 Roger M. Scher, 212-908-0240 James Jockle, 212-908-0547 (Media Relations)
SOURCE: Fitch Ratings