The Dominican government announced yesterday that the Paris Club has accepted the proposed strategy to restructure the DR’s public external debt while complying with the Paris Club’s comparability of treatment requirement. In a press conference at the Presidential Palace, Technical Secretary of the Presidency Juan Temistocles Montas, Finance Minister Vicente Bengoa and economic advisor to the Executive Branch Julio Ortega Tous gave an update on the latest round of financial negotiations.
Franco Uccelli of Bear Stearns reports on these in a release today where he points out that the Paris Club decision effectively allows the rescheduling of the agreement it reached with the DR last April, which afforded the country US$193 million in bilateral debt relief for 2004 and allowing the nation to remain on track.
In view of yesterday’s announcements by the Dominican economic team, Uccelli reports that while the specifics of the government’s proposal have not been made public, three key conditions to ensure the continued application of the Paris Club accord were disclosed. First, the DR must clear all existing arrears with Paris Club creditor nations. Second, an agreement with the IMF must be finalized. And third, the country must comply with the comparability of treatment requirement imposed by the Paris Club in exchange for its debt relief. To meet this last condition, the government announced that it has retained the services of UBS and Morgan Stanley to act as its financial advisors in the design of a strategy to renegotiate the DR’s commercial debt with bondholders, private banks and suppliers, which in June represented close to US$2.3 billion.
Summing up reports from the Dominican press, Uccelli points out that the Dominican government must present the Paris Club with an update on its restructuring efforts by mid-November and preliminary results of the process by mid-December.
He also comments on the EUR150 million loan the Spanish government has agreed to grant the Dominican Republic. “While the purpose of such credit is to fund infrastructure projects, we believe that at least part of the hard currency funds will be used to service the DR’s external debt, possibly including the payment of arrears to the Paris Club,” observes Uccelli in his analysis of the announcement of the Spanish funding.
Uccelli also highlights that in granting the loan, the Spanish government shows remarkable good will and expresses its commitment to actively support the DR in its negotiations with the IMF and the Paris Club.
“Bottom line: While the Paris Club’s acceptance of the DR’s proposed private debt renegotiation allows the agreement reached between the two parties to remain on track, it also indicates that a bond restructuring is a virtual certainty (some market participants had speculated that a bond restructuring may not be necessary after all). Moreover, the sizeable credit from Spain should help the DR make ends meet in the near term, assuming that an agreement with the IMF can be quickly finalized. While the recent news suggests that DR’s near-term prospects have improved, the country must still face the challenge of executing a successful market-friendly debt restructuring, not an easy feat by any measure.”