Bear Stearns reported on 1 October on the cooling of relations between the IMF and the Dominican government following the government’s insistence on rushing the buyback of Union Fenosa power distribution company shares. Bear Stearns does not believe, however, that the short-term fiscal costs associated with the renationalization of the power distribution companies will be substantial, given that the future revenues from the distribution contracts will be used to service the companies’ existing debts. “We do not expect that these events will be enough to completely derail the IMF agreement,” writes Franco Uccelli, Bear Stearns’ vice-president for emerging markets. He mentions that restructuring of the energy sector was included in the letter of intent signed with the IMF.
Reportedly, the IMF had requested a 30-day postponement of the signing of the agreement. After the government rejected the request, the IMF mission that was in Santo Domingo to conduct an initial review of the stand-by agreement returned to Washington for consultations. Uccelli says that in addition to leaving the review unfinished, the mission’s actions effectively put the stand-by agreement on hold, interrupting all scheduled disbursements from the IMF, the World Bank and the Inter-American Development Bank. So far, the IMF has paid only US$120 million of the estimated US$600 million in multilateral disbursements scheduled for this year.
As a result of the interruption, the volatility of the Dominican economy is likely to worsen as far as the dollar-peso exchange rate is concerned. This phenomenon is already being reflected by the downward trend the peso has maintained this week.