President Leonel Fernandez will travel on Wednesday to Brazil to participate in the Group of Rio summit, as reported in El Caribe. The summit trains its focus this year on Latin American integration and the identification of new sources for finance. Fernandez told the press that in Brazil he will discuss two loans, one with the Banco Centroamericano de Integracion y Desarrollo and another with the Corporacion Andina de Fomento. Following his participation in the Brazil summit, he will travel on to Caracas for the signing of the Acuerdo Energetico de Caracas that will allow certain facilities for the payment of petroleum bills and will ensure their source of fuel. The president is scheduled to return home on Saturday.
The private helicopter aboard which Police Chief Major General Manuel de Jesus Perez Sanchez was traveling to Puerto Plata crashed yesterday at around 11am into a hill. The collision took place shortly before entering the city of Puerto Plata, when, according to the pilot, the turbine motor shut down. The head of the National Police attributed their survival to the ability of pilot Freddy de los Santos, who is also the chief of the NP's aviation division. While the helicopter itself was totaled, only de los Santos was hospitalized in Puerto Plata for observation. Police Chief Perez Sanchez suffered a minor fracture of his right arm, the chief of criminal investigations Bernardo Santiago sustained a fractured ankle, but Deputy Chief Rafael Calderon Efres suffered only minor injuries. Perez rejected the notion that the helicopter malfunctioned due to sabotage. They had contracted it from the private company of businessman Huascar Rodriguez because the NP's own helicopter is under repair. The police chiefs returned to Santo Domingo by private plane.
The group was en route to Puerto Plata to investigate the shooting of NP Second Lieutenant Herberto Espaillat Castillo, who was injured while on duty in Puerto Plata.
The Ministry of Interior and Police cancelled the arms licenses of members of the municipal police nationwide. Furthermore, Resolution 04-04 dated 29 October bans the use of municipal police uniforms and ranks on the grounds that this is in violation of other laws. In the resolution, Interior & Police Minister Franklin Almeyda stated that the groups formed under the municipalities cannot continue to operate, as they create confusion regarding the role of the National Police.
The mandated increases of 30% on minimum wages and 25% on monthly wages of up to RD$20,000 for companies with assets of more than RD$500,000 should be seen on 30 November pay checks, if the increases are not appealed. The National Salaries Commission has yet to rule on any wage increase for the free zone, tourism and construction sectors. The wage increase is to be applied as of 15 November and thus checks paid out on 30 November should reflect the new scales.
The net reserves of the Central Bank have improved and at the end of September stood at US$372.9 million – the highest level since May 2003 when the banking crisis began. At the turn of government, the reserve level was US$352.2 million, considerably up from the US$114.2 million level of January 2004. The gross reserves increased to US$800.8 million, while the solvency level of commercial banking was beyond the 10% required by the monetary and financial code, reaching a level of 11.9% in June 2004, as reported in Diario Libre.
Beat Siegenthaler of Commerzbank Securities, the investment banking division of one of Europe's top banks, reports that on Friday, the DR government announced its desire to conclude the negotiations on a new IMF program by mid-November. He indicates that the IMF has underscored this view with a statement saying that discussions would continue on electricity sector and 2005 budget provisions. Siegenthaler expects a new two-year arrangement worth around US$800 million to be announced. "Once a respective 'letter of intent' is signed, the government is likely to announce the terms of the expected debt exchange, possibly towards end-November. We continue to believe that the bond restructuring will be market-friendly, including a maturity extension (possibly by five years) but no haircut on principal or interests," he writes.
Furthermore, he indicates that Fitch Ratings reported on Friday that the DR would be downgraded to C from CCC+ once the debt exchange is announced. "However, the new bonds would be potentially rated B based on Fitch's preliminary assessment of the DR's financial and economic condition."
Siegenthaler maintains an "overweight recommendation" based on the view that the forthcoming restructuring will be a benign one and that the new bonds are likely to outperform soon after issuance. The exit yield for a potential new 9.04% $2018 (exchanged for the old 9.04% $2013) is likely to approximate 12%, which would be the highest yielding asset among Latin American credits, he reports. Based on the country's fundamentals, he writes, bond prices should then start to move in line with regional peers such as Jamaica and Uruguay. By comparison, Jamaica (B1/B 105/8% $2017) currently yields 10.6% and Uruguay (B3B $2017) yields 10.2%.
Reporting on the Dominican Republic for Bear Stearns, Franco Uccelli says that while the country's prospects have improved, the DR still needs to confront numerous significant challenges to achieve a bullish outcome. He emphasizes that it must first reinstate the IMF agreement to restore credibility to its economic and financial program and so that disbursements from multilaterals may be resumed. He furthermore comments that the expectation is for the agreement to be finalized some time between December and January. He continues his summary to indicate that the government needs to pursue the restructuring of its commercial debt, including its outstanding international bonds, as a way of negotiating its way out of the current liquidity crunch.
On the home front, he points out that the resilient economy is already showing signs of recovery, but highlights that, to begin with, order must be restored to the country's fiscal accounts in order to offset the previous administration's financial slippage and to foster the re-establishment of manageable and sustainable fiscal conditions over time. Secondly, the Central Bank's quasi-fiscal debt burden must be reduced to less onerous levels through the combination of creative and viable liability management operations and the restoration of macroeconomic stability and growth. Lastly, the electricity crisis must be resolutely confronted so that the sector's red-ink bleeding can be contained and reversed, and the lights may be kept on.
Headlines over the weekend focused on talks within the Dominican Liberation Party (PLD) to make room for 50,000 PLD party members on the government payroll from now to December. As reported in the Listin Diario, President Leonel Fernandez met with Lidio Cadet and Cristina Lizardo of the PLD's jobs commission to discuss the need to fill posts with PLD members. Cadet said the PLD members want to replace PRD members who still hold jobs within the government.
Senator Ramon Alburquerque (PRD Monte Plata) said that if the PLD plans to remove 50,000 PRD members from government jobs he believes it is because they understand they do not need the support of the PRD members in Congress and will govern by issuing decrees. "Then the time of confrontation will begin over what we thought were matters of the past," he told Hoy newspaper.
Meanwhile, as reported in Hoy newspaper today, economists Eduardo Tejera and Fernando Alvarez Bogaert (a former minister of finance under President Hipolito Mejia) said that the goal to create 50,000 new jobs in government is incompatible with the fiscal deficit of the country and the need to continue reducing government spending. Tejera said the only way to create jobs is through productive works, and not in bureaucratic posts. Alvarez Bogaert said that the government has enjoyed a reduction in the fiscal deficit due to the peso's appreciation on the exchange market and the increase in government collections, but that it is still necessary to limit government jobs in order to move forward with the IMF agreement.
Guillermo Caram of the PRSC called on the national community to be vigilant so that government spending is not again expanded. "If that [expansion] is implemented then no one should dare dream of agreements with the IMF in the short term."
Diario Libre reports that sources from the Presidential Palace indicated that the government last week held back hundreds of checks to government employees who received wages from more than one governmental department.
Cell phone use in the DR has boomed. In 1996, only 1 in every 100 people owned a cell phone. Only eight years later, however, this statistic has increased to 27 out of every 100. This means that cell phone sales represented 82,500 in 1996, a number which catapulted to 2.3 million as of March 2004. According to a report in El Caribe, 2001 was the year that made the difference, when 1,270,082 wireless units were purchased by consumers, causing the number of cell phone users to surpass that of fixed lines at 955,145 units. From that year forward, the propensity for land lines has diminished, having gone from 11.8% of the population to 10.4% of the population in 2004. Interestingly, in 2002 and 2003 there were negative growth rates of –4.8% and 0.8% for the traditional wired lines. Growth in the first quarter of this year is at 0.6%.
El Caribe's report states that the numbers clearly show a preference for wireless units in regards to the installation of residential lines. Nevertheless, it points out that the peak may have been reached, as there is a deceleration in the growth of new wireless users. The newspaper speculates that this trend could be associated to the curbed buying power of the Dominican population and the increase in the cost of the service.
Currently in the Dominican Republic, 76% of cell phone users prefer the pre-paid cell phone arrangements over contracted service. According to Manuel E Bonilla of Verizon, pre-paid mobile plans are the most profitable for the telephone companies. He said their challenge is to retain these clients by offering them new services, products and offers to replace their equipments.
Listin Diario highlights that Scotiabank will close this year's operations with profits of RD$1.8 billion, which is equivalent to 50% of the profits to be generated by all other local banks collectively. Scotiabank benefited from the concession granted (without a tender) of Baninter's better client portfolio plus 35 of its most profitable branches. Listin Diario, the newspaper that formed part of Baninter's assets and was only recently returned to Baninter's former owners by the Fernandez administration, headlines that the financial statements of all the other commercial banks together show a profit of about RD$4 billion as of 31 September. The newspaper points out that, prior to the Baninter deal, in its previous 83 years in operation in the DR, the Canadian bank had never made more than RD$200 million in one year. In 2003, the government transferred Baninter's operations to Scotiabank, ranked 6th in the country, following the official intervention in the bank's dealings for mismanagement and fraud. The newspaper observes that one of the downsides of Scotiabank's takeover of Baninter's interests is that most of the dividends will now be expatriated, which would not be true were it a local entity.
Santo Domingo's Cardinal Nicolas de Jesus Lopez Rodriguez would like to shut down the bars and restaurants that have turned the capital's Colonial City into a nocturnal hotspot for fun-seekers. The cardinal is particularly displeased with Mankala and Abacus, two bars that lie directly in front of the La Altagracia church. The cardinal says these establishments have turned the colonial zone into a "whorehouse" and denigrate the city as a whole, as reported in the press. He said that he favors closing every business that needs to be closed and sending their owners home – and if the owners are foreigners, then they can return to their own countries, he said.
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