The Economist Intelligence Unit conditions a modest
recovery in the local economy in 2004 on the government?s ability to restore
confidence in its management of the nation. In a Country Outlook published on 22
August, the British journal forecasts a possible contraction of the economy by
2.8% in 2003, as inflation (estimated at 32.2% for 2003) erodes real purchasing
power, and high interest rates and a loss of confidence curbs investment. The
publication mentions that the unemployment rate, currently at 16.1%, is at its
highest level since 1996, mentioning also that the combination of rising prices
and more frequent power outages have provoked renewed public protests.
EIU forecasts ?a return to positive growth on the assumption that the government
takes the necessary action to restore confidence, helping to stabilize the
foreign-exchange market and bring down interest rates? in 2004. It does not hold
much optimism, however, that this will happen in an electoral year. ?Given the
risks of policy slippage in an election year, confidence may remain weak, which
could lead to another year of negative growth or stagnation.?
In its comments on the effect of the May 2004 presidential election on
legislative decisions, the EIU states that the administration has put off
responding to the appeals of the business community, which has called for an
immediate overhaul of the tax system, until after the election. In the interim,
it has introduced emergency taxes to close the fiscal gap. EIU says that the
high-yielding certificates the Central Bank has issued to absorb liquidity and
mitigate pressures on the peso due to massive advances made to collapsed banks
could in turn generate a quasi-fiscal loss of RD$8 billion, or approximately
1.5% of GDP in 2003.
Regarding the external sector, the EIU states that the present surplus in the
current account could continue, aided by the recovery in tourism, free zone
exports and continued strong remittances. Also boosting the surplus is the
decline in imports, which reflects the depressed demand and higher cost of goods
from abroad, due to the depreciation of the peso. Moreover, EIU states that
capital flight is likely to continue until economic policymaking improves and
confidence in the financial system is restored.