Geoffrey Gottlieb, of the Goldman Sachs brokerage firm, comments today on the reported US$154-million public-sector external financing gap that the country must fill, either by restructuring private-sector claims or by contracting new loans in order to avoid a default. The government restructured US$193 million of the US$293-million debt, leaving a US$100-million hole, which is now said to be US$154 million.
Press reports indicate that the increase is due to the inclusion of debt service to electricity companies, as is required by the agreement with the IMF. Gottlieb comments that more information is needed before drawing final concludes on what appears to be a significant worsening of an already bad situation. He says the additional US$54 million could be part of the 3% of GDP slippage caused by the electricity sector and that has been known for the past two weeks. ?If so, we are back in the place of determining whether or not the government’s imminent fiscal reform and/or additional official sector support will be adequate to offset or finance this 3% of GDP and restart the IMF program, and whether the government can get $100 million in new resources to fill the original financing gap and comply with comparability of treatment. Nonetheless, this is not good news,? writes Gottlieb.
He also reports that Daniel Toribio, whom he describes as the top economic member of the Fernandez transitional team, made the following statement yesterday about the 23 July coupon payment [US$27 millilon due]:
“If the government pays, the Paris Club could interpret this as the Dominican Republic violating the comparability of treatment requirement, that is to say, using the relief provided by bilateral creditors to pay other creditors… Achieving comparability of treatment with the Paris Club is a major concern of ours. There have been efforts to find the US$100 million [in new private sector resources to comply with the comparability of treatment] and some banks have been interested, but insist on conditions that the IMF and Paris Club don’t accept.”
He cites El Caribe newspaper, that carries a quote by Apolinar Veloz, the current technical manager at the Central Bank. Veloz said: “The proposal of the Central Bank was to renegotiate all external debt, but the Technical Secretary of the Presidency who was the leader of the negotiations decided to seek the $100 million [in new resources], while the potential investors have said we should have an agreement with the IMF first.”
Finally, Gottlieb comments that both the outgoing and incoming governments have feared for some time that making this coupon payment would jeopardize the Paris Club relief and thus any hopes of a renewing the IMF program. ?We have consistently disagreed with this view (the deadline for the Paris Club is October, when an update is required) and do not see the official sector (including the Paris Club) forcing this country to miss the July coupon payment, as they will recognize that the chance of an orderly restructuring in the current transitional environment would be very low,? he states. ?For this reason,? he continues, ?We still see the coupon payment being made (perhaps 80% chance rather than our previous 90%) while still using a portion of the grace period. However, we see consensus by the relevant parties as moving toward a restructuring in the nearer term, possibly Fall 2004, given the litany of challenges facing this country. With US Treasury Under-Secretary John Taylor arriving in the DR tomorrow, we see US support as strong but not likely adequate to generate a new official sector package of adequate size to prevent restructuring.?
Taylor is expected in Santo Domingo tomorrow to meet with President Hipolito Mejia, members of the DR?s Congress and others for discussions on the pending tax reform. The US official previously visited the country for 24 hours in November and his upcoming stay is not expected to be much longer, as he is scheduled to arrive on Friday afternoon and depart on Saturday, according to El Caribe newspaper sources.
Taylor is reportedly insisting that the tax reform be passed swiftly. Taylor will also travel to Haiti on this trip to the Caribbean.