The International Monetary Fund released yesterday a
summary of the conclusions of its 29 August consultations with the Dominican
Republic. The IMF directors recommend increasing revenue while curtailing
government expenditures to limit the budget deficit and emphasize the need for
the government to adopt comprehensive tax and expenditure reforms. "Directors
urged the authorities to advance approval of a tax reform to broaden the base of
consumption and income taxes, and to seek prompt approval of budgetary reforms
to improve the efficiency of public spending," states the report. The directors
welcomed the decision to unify the exchange market and the authorities’
commitment to a fully flexible exchange rate policy. The IMF feels that to
realize medium-term growth potential the country will require structure reforms
beyond those in the systems of banking and governance. On the positive side, the
IMF highlights the fact that exports and tourism have recovered so far in 2003,
and that imports have fallen as a result of the downturn in domestic demand and
a sharp depreciation of the peso. The IMF states that the external current
account showed a 1% surplus of the GDP in the first half of the year, after a
deficit of 4% in 2002. Notwithstanding, the financial account has weakened
acutely, even after the placement of US$600 million in sovereign bonds in early
2003. This is attributed in part to the decline in direct foreign investment and
capital outflows. The IMF attributes the downturn of the economy, after strong
economic performance during 1992-2000, to a series of external shocks that began
in 2001: rising oil prices, 9/11, and the economic slowdown in the US and
Europe. It explains, however, that the biggest blow was the breakdown in the
banking sector, which was met with monetary expansion by the government and a
sequence of economic complications. The IMF attributes the banking crisis to
governance problems that went undetected for many years, including accounting
malpractices, mismanagement and fraud. It applauds the authorities for having
launched a comprehensive program to strengthen the banking system. To read the
report, see
http://dr1.com/news/2003/101503_IMF.pdf