Bear Stearns reports in its Central America and Caribbean Monthly Report issued on 6 January that despite remarkable volatility during much of 2004, Dominicans bonds managed to capitalize on the partially restored market confidence in the country to rally late in the year and deliver a strong performance (+23.4%) for the year as a whole. The Bear Stearns report states that the DR ranked among the top-performing credits in the region.
The analysis recounts that the balance of recent news out of the DR has been positive, and mentions the corn syrup tax that put the FTA with the US at risk having been abolished, the government’s budget for 2005 (a precondition for the restoration of an agreement with the IMF) having been approved, and virtually all recent economic data releases suggesting that the economic recovery is strengthening.
Bear Stearns highlights that GDP is expanding again (it grew by 3.3% in 2004), inflation continues to trend downward, the exchange rate remains stable, a drastic decline in local interest rates has eased the pressure of servicing the quasi-fiscal debt of the Central Bank, international reserves are growing and the external economy continues to outperform expectations.
The brokerage firm says that the country’s key challenges remain fiscal in nature, with the overall deficit for 2004 estimated at around 7% of GDP and the country’s public debt topping 60% of GDP, more than double what it was only two years ago.
But the report highlights that the good news is that fiscal prudence and economic growth, both of which show promise under the DR’s current program, could ease fiscal pressures and moderate the public-debt burden.
The Bear Stearns report, issued on 6 January, says that a successful, market-friendly restructuring of the country’s bonded debt, which is currently under consideration, would further improve its credit standing.
The company maintains its “outperform” recommendation on the Dominican credit (B3/CC).