News on the Economy

El Nacional newspaper editorialized on Sunday asking why the government let expire the offer of the International Monetary Fund to monitor the Dominican economy as a follow up to the previous Stand By Arrangement. El Nacional writes that it appears the government is not interested in the IMF reviewing the present or future status of the economy. The editorialist says to ignore the IMF offer sends a bad signal to domestic and foreign economic agents on the status of the economy and erodes the credibility and image of the country before investors and financial institutions.
"There are reasons to think that it is in the country's interest -- and there is still time -- for the government to sign some kind of agreement with the IMF that obliges the government to restrain its spending and reduce the current account deficit and that of the Executive Branch and the Central Bank," writes the editorialist.
The editorial writer says that the available statistics indicate that the current account deficit in the balance of payments could be more than US$4 billion, double that of last year, while the government and Central Bank accounts that are in red are 3.5% of the Gross Domestic Product (GDP), which means the house is still on fire.
The newspaper says that it is convenient for the Dominican economy, now under external pressures and with excessive public spending, to submit to periodical reviews by the IMF, because if not, in the short term, the government will again be forced to subscribe to a new Stand By Arrangement obliging greater restrictions.
The IMF had expected the DR to engage in a post-program monitoring, following the completion of the 3-year Stand-By Arrangement for about US$688.6 milllion in January 2008. The authorities had expressed their willingness to do so on 24 July. At the time, Julio Estrella was appointed as new Dominican government representative to the IMF. The monitoring agreement would oblige the DR to present to the IMF their economic, fiscal and monetary implementation programs twice a year.
Diario Libre reports that government spending is up 40% from January-August 2008, compared to the same period in 2007. Government spending was RD$176.06 billion, or RD$50 billion more than last year and RD$11.6 billion more than fiscal revenues collections.

01 September 2008 - DR1 Daily News

Central Bank Governor Hector Valdez Albizu defended recent Central Bank monetary policies implemented to counteract external pressures on the balance of payment. Valdez Albizu agrees with Hacienda Minister Vicente Bengoa who argues that the recent appreciation of the dollar to the peso is seasonal, and nothing out of the ordinary. Business and consumer groups have also complained about rising interest rates, but Valdez says this is a Latin American and European trend. Consumer bank lending rates have increased up to 50% this year, going from 16.5% in May to 24.5% in August. In a meeting with President Leonel Fernandez and economic advisors at the Presidential Palace, Valdez Albizu said the peso is where it should be. "The measures we have taken tend to adjust and guarantee macroeconomic stability and to slow down the economy," he explained. Valdez Albizu also agreed with projections from the Economic Commission for Latin America and the Caribbean (ECLAC) that indicate the Dominican economy will grow 5.5% in 2009.

29 August 2008 - DR1 Daily News

Fears for a potential economic downturn are motivating some investors to liquidate their Central Bank certificates of deposit. Listin Diario reports that this is one of the reasons why the US dollar has appreciated. The current dollar to peso exchange rate is on average RD$35.20 per US$1. For the first time since 2003 there has been a decrease in certificates of deposit issued by the Central Bank, which now total about RD$6 billion. This shift has caused the Central Bank to increase interest rates. Accordingly, at the beginning of the year a certificate stock in the Central Bank totaled RD$191.4 billion. This decreased to RD$185.6 billion by 21 August, a 3% decrease totaling RD$5.8 billion. Between August and December RD$35 billion in certificates will expire and economists are concerned that there will be fewer renewals.

26 August 2008 - DR1 Daily News

Despite the fact that foreign investment in the Dominican Republic has increased over the past few years, this could have grown even more if there were better judicial guarantees and less red tape. Both issues, combined with the lack of reliability and reasonable pricing of electricity, place the country at a disadvantage compared to other nations and as a result, lead to the loss of millions in capital from businesses that prefer not to venture into the local market. According to Central Bank figures, foreign investment has reached US$1.69 billion, of which US$723.3 million came from the real estate sector. Tourism was in second place with US$445 million, followed by telecommunications with US$417 million. For the first quarter of this year, the flow of capital that arrived from overseas was US$1.06 billion and according to estimates from the director of the Foreign Investment Enterprises Association (ASIEX), Pablo Linares, the total could reach US$2.5 billion by the end of the year.
Linares reminded Diario Libre reporters that, "the first thing an investor asks for is macro-economic stability, an exchange rate that reflects the reality of the market, and an important part of this is judicial and personal security." Even though he understands that in the Dominican case there is judicial security, he said that one cannot fail to mention the Chevron case where the company is affected by a conflict with the tanker and driver unions that have a monopoly on transporting the fuel. He warned, "We must always be careful of the image that is projected overseas and affects efforts that are being made to attract investments."

25 August 2008 - DR1 Daily News

The sale of living quarters, single-family houses, condominiums and apartments has fallen by 70% this year over last. Meanwhile, construction has tailed off by a 30% to 40% margin in 2008. According to Listin Diario, the cost of construction materials used in housing construction increased by 17.5% from January to August, according to statistics from the Dominican Chamber for Construction. In July this year the cost of materials for single-family dwellings increased 19.5% from September 2007. The plight of the construction sector was outlined for the editors of Listin Diario by Diego de Moya, the president of the Chamber for Construction, Christian Maluf Khoury, vice-president and Jaime Gonzalez the president of the Dominican Association of Builders and Promoters (ACOPROVI). They said that a country's development is measured by its infrastructure. They said that since 1997, the cost of building supplies has risen by 349%, and just over the past eight months a bundle of re-bar had increased 100% in price. According to these experts, an important factor in the fall in home sales is the rise in interest rates, which have gone from 10% to 22% (and 24% in some cases). According to de Moya, a 1% increase in the interest rate on home loans is equal to a 5% reduction in the debt capacity of a potential homebuyer. Other factors driving home sales down are transport costs and increased salaries for construction workers, as well as the huge increase in the price of cement.

25 August 2008 - DR1 Daily News

The Swiss-British company Xstrata has announced the temporary closing of its nickel plant Falcondo. The company says that its costs have risen due to escalating petroleum prices at a time when the market prices for nickel has declined. Falcondo, located 80 kilometers from Santo Domingo, in Bonao, will continue maintenance and reparation projects during the temporary closing. The company will also switch from petroleum to coal-based energy use, said Ian Pearce, Xstrata company spokesman. He said that only 10% of the jobs will be cut. Falcondo presently employs 1,800 workers.

19 August 2008 - DR1 Daily News

The trade deficit between the US and the DR in the first semester of the year grew by 81.84% in comparison to the same period in 2007. According to Hoy the trade deficit went from US$726 million to US$1.32 billion due to an increase in imports, and the relatively-strong Dominican peso. Imports were up from US$2.8 billion to US$3.3 billion. At the same time, exports were down 4.6%, going from US$2.1 billion to US$1.97 billion. The trade deficit is a recent phenomenon considering that in 2004 the DR had a trade surplus with the US of US$14 million. Compare this to the June 2008 alone monthly deficit of US$220 million. Since the implementation of DR-CAFTA Free Trade Agreement, the trade deficit has reached US$2.87 billion, according to Department of Commerce statistics.

14 August 2008 - DR1 Daily News

Edwin Ruiz of Clave newspaper writes today about the contradiction between the millions invested in the "electronic government" of President Fernandez and the backlog in publishing economic statistics. He makes the point that the Budget Department (Digepres) has a freedom of information access department but this is not yet operating, four years after this was ordered in Law 2000-04 on Citizens' Right to Freedom of Information. He points out that the government has not published the monthly budget execution reports since February. And the information on government spending is only available up to April 2008, when this information was readily available when the country was under the International Monetary Fund's stand by arrangement. He comments that the muteness of the financial authorities has the country in the dark as to what is the true fiscal deficit for this year. Ruiz establishes that Dominican Law 423-06 (J section) orders the publishing of the information 30 days after the completion of the budget period. Another law that he says has not been fulfilled is Law 5-07 that created the Integrated Financial Administration System (SIEFE) 5-07 that orders the government to make available information on budgetary execution in a clear, uniform and transparent way.
Economist Miguel Ceara-Hatton of the United Nations Human Development Office estimates the deficit of the central government at RD$52.7 billion during 2008, to which the quasi-fiscal deficit (of the Central Bank) would have to be added bringing this to RD$75 billion. Ceara-Hatton recalls that the government on several occasions has said that the public finances are balanced.
Clave newspaper says that the lack of transparency has spread to the Central Bank. As of 12 August, the Central Bank had only published a report for the first quarter of 2008 and the definitive for 2007. The Central Bank website indicates that the updates would be available at most 45 days after the period expired.

14 August 2008 - DR1 Daily News

Celso Marranzini, former president of the National Business Council (CONEP) backs the dollarization of the Dominican economy. California-based Dominican economist Victor Canto is a strong advocate of dollarization. Marranzini says dollarization would limit the Monetary Board's discretional control. "We would save a lot on the enormous salaries of the Monetary Board," said Marranzini. Marranzini also argued that the country's inflation and interest rates would be that of the US, and there would no longer be fears of devaluation. He also argued that Dominicans are already familiar with the dollar as a currency. Not all have jumped on the dollarization bandwagon, though. Porfirio Garcia Fernandez, former UASD Dean, has rejected saying the country is not ready for dollarization because the country does not have sufficient international reserves.

14 August 2008 - DR1 Daily News

The export of apparel manufactured or assembled in the Dominican Republic fell 12.7% in volume exported and 25.5% in the value of the exports for the first six months of the year. The fall in the sale of apparel also reflects some of the diversification that is taking place in the industrial free zones nationwide. Today, the business mix of Dominican free zones is much more diverse. From 60% apparel years back, apparel companies now only make up 32% of free zone companies. Others are health products at 18.4%, electric products at 16.6%, jewelry at 14.5% and services at 13.1%. Tobacco products (primarily cigars), footwear and marketing services make up the rest.
According to the latest report from the Major Shippers Report, the Dominican Republic exported 180.7 million square meters of apparel to the US market during the first half of the year, a 12.7% decrease from a year ago. (Costa Rica also registered a loss of 21.7%).
The report also states that on a worldwide level there was a 3.84% fall in volume and a 4% drop is value in the textile trade. Of the countries associated with the DR-CAFTA agreement, only Honduras, El Salvador and Nicaragua increased their textile exports. Of interest to the sector is the fact that the report states that China faced increasing workers' demands for higher wages, and saw their volume and value fall, although by only 7% and 6% respectively.

13 August 2008 - DR1 Daily News