Beat Siegenthaler of Commerzbank reports that a new IMF program is expected to be announced in Washington later today. He explains that the exchange rate to be used is the final point being negotiated. Technical Minister of the Presidency Temistocles Montas had said in Santo Domingo that the program was based on a rate of RD$37 to the US dollar. But the peso is holding to a rate of approximately RD$30 to US$1 over the last couple of weeks, reason for which Siegenthaler says the government is now pushing for a lower rate. This would make it easier for the authorities to reach certain targets under the IMF arrangement. Siegenthaler writes that the appreciation of the peso “has put the government in an unexpectedly strong external position, shaving off several percentage points on the debt-to-GDP ration, which may by now have dropped to below 50%.”
Furthermore, he highlights that the economy has also recovered more quickly than expected, with the growth rate for this year projected at 1.8%, in contrast with an IMF projection of ?1% as recently as August. On the other hand, bond prices have soared to 95.25 for the 9.5% $2006 and 85.5 for the 9.04% $2013, up from their lows of 65 and 60, respectively, earlier this year.
The Commerzbank Emerging Markets Strategy Team maintains its “overweight recommendation” regarding Dominican bonds, basing itself on the positive outlook after the anticipated restructuring. Siegenthaler writes that recent economic developments reinforce their belief that the DR can afford a debt restructuring with limited NPV relief. “In fact, the economic rationale for the restructuring has been further diminished by the quick recovery. We nevertheless expect the debt exchange to go ahead as planned, mainly due to pressure from the Paris Club requesting comparative treatment of private creditors.”
He believes the terms of the exchange are likely to be announced after the IMF’s board approves the new program, setting the timeframe for “possibly late December or early January,” and the exchange to be implemented in February.