Following meetings last week between a top-level Dominican delegation and the Paris Club, the DR’s Presidential Technical Secretary Temistocles Montas announced the conditions necessary to maintain the agreement with the Paris Club and reschedule some US$193 million in bilateral debt (US$155 million in 2004 maturities + US$38 million in arrears). Compliance with these terms will enable the DR to secure a new stand-by program that would again give access to multilateral funds. In addition, Franco Uccelli of Bear & Stearns writes that the country must clear more than US$40 million in arrears incurred with the Paris Club since mid-April, when the debt relief agreement between the two parties was signed. Paying off such debts is a requirement for both the preservation of the Paris Club agreement and for the restoration of an IMF assistance program.
Another condition is that the DR must formulate a strategy to restructure its private-sector debt, while complying with the principle of comparability of treatment. The government must present these plans to the Paris Club by next month.
Uccelli writes that according to the Dominican government, the Paris Club believes that such a strategy should be market-friendly in nature and therefore must avoid incurring further arrears or an outright default on the country’s debt. He explains that the Paris Club will reportedly not object to payments made to private creditors as long as the outlined objectives are met, nor would it object to any bridge financing that may be secured as part of the government’s overall liability management program.
“Much like the IMF, the Paris Club is showing flexibility and a willingness to support the DR’s efforts to recover from its current predicament,” concludes Uccelli. “The new Fernandez administration, for its part, seems to have a good grasp of the issues at hand and of the inherent risks of non-compliance with the country’s multilateral and bilateral agreements.”