The Listin Diario reports that the government, banks, exchange houses and remittance companies have agreed to bring the exchange rate down to RD$30 to US$1 within a week. Through reliable sources, the Listin Diario learned that a meeting was held at the Presidential Palace on Avenida Mexico, where the government's team was headed by Hipolito Mejia. Other participants included the head of the Armed Forces, General Soto Jimenez; the chief of Police, General Marte Martinez; the head of the DNI (National Intelligence Agency), General Cruz Mendez; the head of the Internal Revenue Department, Quico Tabar; the head of Customs, Vicente Sanchez Baret; and the governor or the Central Bank, Jose Lois Malkum. The business community was told that the IMF requires the exchange rate to be below RD$40 to US$1 in order to ratify the pending standby agreement. The report says that the President's economic team was also present. Pedro Castillo, Guillermo Leon Asensio, Luis Molina Achecar, Victor Mendez Capellan, Freddy Ortiz and Jose Manuel Lopez Valdes represented the commercial banks, the remittance companies and the exchange houses. After the President spoke on the need to lower the exchange rate, the various spokespeople expressed their agreement. According to what was reported to the Dominican Association of Remittance Companies, as printed in Hoy newspaper, the President ordered the exchange agencies to rein in their rate to bring it under the RD$40 mark. Hoy also revealed that during the meeting, a commission composed of three generals and other officials was assigned the task of enforcing the agreements, and, beginning today, no unauthorized sales of dollars or euros will be permitted. Emilio Lapayese, in his column "100 Words", did not let this meeting slip by without commentary. He says the presence of the high-ranking military and police figures might have a special meaning, yet unknown, but does not promote much reassurance.
Two banks, Banco Popular and Mercantil Bank, were selling dollars at RD$40 to US$1 prior to last night's meeting, undercutting the going rate of the past two days by approximately RD$4.00 per dollar. Both banks announced that they would today have dollars for sale at the new rate and lower rates are expected to continue with the arrival of the Christmas season, bringing many Dominicans home for the holidays and a large influx of dollars from the industrial free zones in preparation for the holidays.
Dollar loans are becoming less popular in the private sector, according to the Central Bank, which ascribes the trend to the uncertainty regarding the volatility of the peso. The Dominican currency has suffered a depreciation of 58.6% over the last few months.
According to the 3 December report of Bear Stearns, the investment banking and securities trading and brokerage firm, while their contacts in the economic team deny that capital controls would be implemented to stop the slide on the peso, they have reason to believe that "President Mejia seems to be relying on very strong moral suasion to try to force the peso stronger." The report prepared by Carl Ross and Franco Uccelli for the firm states: "Our view is that this strategy is doomed to fail. In our opinion, by any valuation measure the peso is undervalued. The reason for the weakness is lack of confidence and too much peso supply. Trying to apply moral suasion to this set of circumstances will make the situation worse because it reduces confidence instead of increasing it." The report explains that the peso should appreciate of its own volition because December is a month in which foreign exchange inflows are high due to remittances, the free-trade zones' financial repatriation and the end of the Christmas inventory-building season. The peso broke the RD$45-US$1 barrier last week, to drop several points by itself at the end of the week.
The government has proposed to submit a budget to Congress that would request somewhere between RD$120 billion and RD$125 billion for the year 2004. According to Listin Diario reporter Maximo Manuel Perez, RD$105 billion would be derived from the usual taxation, and another RD$20 billion would be obtained from external sources in the forms of loans and donations. If the budget is approved at the RD$125-billion level, it will represent spending of RD$42 billion more than the 2003 budget, which was pegged at RD$82.99 billion. According to Finance Minister Rafael Calderon, the President will next call a meeting of the National Development Council, who must approve the financial plan before it can be forwarded to Congress.
EIU Newswire on the Dominican Republic, released on 2 December, says that the campaign for the May 2004 Presidential election will take place in a context of widespread social discontent and protest. EIU highlights that, "despite his growing unpopularity and fierce opposition from within his own party, Hipolito Mejia intends to run for re-election. The former President, Leonel Fernandez, of the opposition Partido de la Liberacion Dominicana (PLD), is the favorite to win the election, however. Regarding the economic outlook, EIU states that the government will struggle to meet its IMF fiscal targets. According to the report, tax collection is depressed and the government is reluctant to make cuts to public spending in the run-up to the election. EIU continues to hold faith that if the incoming government manages to restore confidence to the people, a recovery would be in the prospects for 2005. In the meantime, the business information arm of The Economist Group states that after a contraction of 3.4% in 2003, the economy is likely to experience negative growth again in 2004, as inflation erodes real purchasing power and high interest rates and flagging confidence result in curbed investment. Regarding the outlook for funding, the EIU states that if the government is unable to win the support of a forthcoming IMF mission, official disbursements will remain frozen, thereby increasing the risk for default in 2004. The IMF suspended its two-year, US$600-million standby agreement weeks after it was signed, following the government's highly controversial decision to renationalize the two Union Fenosa electricity distributors without seeking the IMF's prior authorization.
Those interested in acquiring a perspective on what 2004 may bring for the Dominican Republic in the context of Latin American should attend the Fundacion Global lecture, given by Dr. David Anthony, Economist Intelligence Unit's Global Director of Country Risk, this Thursday, 4 December at 7:30pm. The event can also be viewed through the videoconferencing facilities at Santiago's PUCMM university. Anthony will broach the topic of Latin America in 2004, particularly mindful of the fact that the Free Trade Area of the Americas is soon due to take effect. "Many Latin American countries, particularly the smaller ones, are unsure whether the FTAA might be a trick to lure them to open up their markets without full reciprocity, or a treat, providing them with unprecedented access to the world's market," reads the promotion on the talk. Anthony will address the tricks, treats, tantrums and trauma of Latin American countries, the Dominican Republic included. He will also raise the issue of the key risks to global economic recovery, and whether insecurity will remain high, focusing on how oil prices would fare should tensions in the Middle East rise and whether Iraq will turn into another Vietnam for the US. Admission to the conference is free, but there are limited amounts of seats. See http://www.funglode.org/
Cesar Sanchez, the head of the CDEEE, told reporters from El Caribe that in spite of the Official Commission for the Electric Sector having designated December as the last month of subsidies for consumers, the government would continue to provide this umbrella during 2004. If not for the subsidies, known as the Compensation Fund, consumers would have faced a 73% increase in their electric bills, due to the devaluation of the peso and the increased price of petroleum.
The head economist at the PUCMM sponsored Cenantillas think-tank, Pedro Silverio, takes on the government and the Report on Electricity in El Caribe's editorial page today. According to Silverio, the government's "irrefutable" arguments were not credible enough for the IMF's high-level team, sent recently to the DR to study the impact of the purchase of the electric distributors (Edenorte and Edesur) - and with good reason. The basic suppositions used by the government on which they based their calculations were wrong, says Silverio. One example cited is the presumption that the government was responsible for 50% of the debt carried by the "Edes". As a shareholder, the government had a responsibility that was represented by the 50% of the shares, but shareholding was the limit of the government's responsibility. If a bankruptcy occurred, the government ran the risk of losing its investment. Even if the government had been responsible for 50% of the debt, it would not have been part of the public debt, although leaning in that direction. The amounts owed only became public debt when the state decided to take over all of the electric distribution. The economist says that another important issue was that efficiency in the power distribution would improve in government hands, a highly questionable supposition given the Mejia administration's prior record for managing public affairs. All this, says the economist, goes to show that the idea was not to find a basis in reality, but rather to justify a public stance that, in addition to doing damage to the economy, would bring about a break in the talks with the IMF. According to the high-level commission of the IMF, "The purchase by the government of the electricity distribution businesses Edenorte and Edesur, has an additional impact on the amount of gross public debt of the Dominican Republic in the amount of US$488.45 million." Silverio calls this figure "respectable", as it almost equals - but under far worse conditions than - the first US$500-million issuance of sovereign bonds. Silverio adds that in the case of the debt taken on by the purchase of the Edes, "It was necessary to assume that it would have no impact on the external debt in order to avoid the constitutional requirement of taking the purchase to Congress for approval. On the other hand, once the IMF accord was signed, the exchange rate began to fall. Nevertheless, when the purchase of the Edes was announced, speculation gathered on further devaluation. True to form, since the re-purchase of the Edes, the peso has devaluated by 34%, although not all of it can be blamed on the repurchase." In his final message, the noted economist says that the deal fostered the break with the IMF and this, in turn, created an atmosphere that fuelled the subsequent devaluation. Today, however, the government chooses to lay blame on the business community for the failure to reach an agreement with the IMF. The responsibility for this is exclusively the government's own, since if they had not broken the first agreement, things would be a lot different today.
President Hipolito Mejia announced yesterday that the government would return RD$74 million to the tourism and free zone sectors, collected as part of the "tax contributions." According to Maximo Manuel Perez of the Listin Diario, Finance Minister Rafael Calderon told reporters that the money would be returned since the majority of the business community had not fulfilled its duty to make the tax contributions as promised. Businesses that dealt in hard currencies were supposed to pay RD$1 for every dollar exported, or exchange dollars at a rate RD$3 less than the official daily rate. Calderon said that RD$63 million would be returned to the free zones and RD$11 million to the tourist sector. In his statements to the press, the minister alluded to a mutual lack of trust existing between the business sector and the government. The government is counting on hard currency producing sectors contributing revenues through a 5% tax on exports.
The critical shortage of propane gas should be eased over the next few days, as a ship carrying LPG (Liquid Propane Gas) is expected to arrive today. Amaury Justo Duarte, the president of the Dominican Oil Refinery (Refidomsa), said that on 9 December another ship was also due to arrive. Justo Duarte warned that the apparent lack of supply could be due to hoarding, as the refinery has not reduced its imports of the most popular - and heavily-subsidized - fuel in the Dominican Republic. The refinery chief told reporters from Hoy that despite the lack of cash-flow, caused by the fact the government has not paid its weekly RD$50-million subsidy for the past six weeks, the plant continues to import the same amount of LPG.
Canadian company Energold Mining Ltd. has announced a joint venture with Irish company MinMet plc on the Longyear Property in the Dominican Republic. The property is described as highly strategic given that it lies 3.5kms southwest of the Pueblo Viejo mine, where more than 5 million ounces of gold have been extracted from oxides and a further 20 million ounces of sulphide-hosted gold awaits extraction. The Pueblo Viejo mine in Cotui is currently undergoing a feasibility study by Placer Dome. Energold was granted the 1,090-hectare concession in 1999 (see http://www.energold.com). The Placer Dome Pueblo Viejo deposit has been in the news recently after another Canadian company, Unigold, announced on its website that the Dominican government had signed a letter of intent, whereby an advance cash payment of US$21 million plus a US$2.5-million donation to a foundation would be made to receive the rights to future revenues from the exploitation of the mine, estimated at US$175 million. MinMet reports that it can earn 60% of the project within three years by following a 1,000-meter drilling program to be conducted within six months of signing the agreement, and a total project expenditure of US$1.5 million. Following this, MinMet says it would have a further right to increase its ownership to 80% by taking the project to the feasibility study phase. MinMet recently received the full title from the DR authorities to the Piedra Iman, Loma Resbalosa and Punta Larga exploration concessions, all of which are within close proximity to the Pueblo Viejo mine. The Piedra Iman concession juxtaposes the Longyear concession in the northwest and has similar geology and alteration. The assembly of these strategic landholding positions has been a key strategic objective of MinMet for the past 18 months. MinMet Operations Director David Hall said, "The acquisition of this option over the Longyear concession allows MinMet the opportunity to test its new geological model for Pueblo Viejo style mineralization, in association with ongoing work at the adjacent Piedra Iman concession. With the increased understanding of geology and geochemistry we have built up over the last two years, we believe that the Longyear property has not been fully tested and has the potential to host a significant gold resource." According to a report on the Mineral Industry in the Dominican Republic by Omayra Bermudez, Energold Mining Limited has been exploring in the Dominican Republic since 1995. During 1999, however, the interest of the government in attracting foreign mining investments to the country encouraged Energold to acquire optional back-in rights for the land that surrounds the Pueblo Viejo mine and other properties that extend east to west through the middle of the Dominican Republic. The report states that in early 1999, exploration of the Los Pedregones I concession, which was fully owned by Energold, led to the discovery of a new zone of high-grade gold-silver-zinc mineralization. Energold believed the zone had the potential to host a "multi-million ounce" gold-silver deposit. See http://www.minmet.ie/mimet/site/lib.asp?id=11
At a ceremony attended by President Hipolito Mejia yesterday, the Leon Jimenes family announced the creation of the Banco Leon, which will represent a union between the Banco Profesional and the newly-acquired Banco Nacional de Credito (Bancredito). Carlos Guillermo Leon, president of the Leon Financial Group, told the attending dignitaries that the family has faith in the future of the Dominican Republic and confidence in the people who will guide this newest financial institution. The Leon Jimenes family is better known for its Marlboro cigarette, Aurora cigar and Presidente beer operations.
The Leon Jimenes Group set forth its tax proposals in the Senate, showing how the country would receive an additional RD$750 million as a result. The new idea is to tax alcoholic beverages on the basis of liters of pure alcohol, adjusted for inflation. According to the group's submission, the new tax structure would provide a 62.20% increase in tax revenues emanating from the sale of alcoholic beverages, bringing them to RD$6.0 billion.
The National Choir and the National Symphony Orchestra announce presentations to bring the Christmas spirit to all. The opening performance is scheduled for 4 December at the Patronato de la Ciudad Colonial, Palacio Borgella, facing Columbus Park in the Colonial City. A performance of the Ars Nova chamber of orchestra with the participation of soloist soprano Ivonne Haza, flute player Luis Ruiz under the direction of Maestro Francois Bahuaud opens the season. Admission is RD$100. The performances continue on Friday, 5 December, when the National Choir visits Puerto Plata for a free performance. On 10 December, the National Symphony will have a presentation at the National Theater grounds. On 11 December, a performance of the National Symphony and National Choir is scheduled for the Segunda Iglesia Evangelica, located at Arzobispo Portes street, under the direction of Dante Cucurullo. This will be repeated on 12 December at the Iglesia Nuestra Senora de Guadalupe in Las Caobas neighborhood. The Convento de los Dominicos is booked for a 16 December Christmas caroling presentation, with the Symphony conducted by Maestro Alvaro Manzano. Next is a 17 December presentation of the National Choir, under Jose Manuel Joa, at the Sagrado Corazon de Jesus Church in Los Prados neighborhood. On 18 December, the National Choir is booked for a performance at the Instituto Tecnico Salesiano at Calle Manuela Diez. On 19 December at the Parroquia Santo Domingo de Guzman located on Isabela Aguiar Avenue and on 20 December there will be a performance at the Iglesia San Antonio de Padua in Gazcue. For more Calendar updates, see http://www.dr1.com/calendar
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