Geoffrey Gottlieb, of Goldman Sachs analyzes government track records and styles of the two leading contenders of the 2004 presidential election in an Emerging Markets Fax ?DR Election Special? issued today.
Gottlieb underlines how the polls suggest an electoral win for Fernandez, and says: ?Such a result should be positive for bond prices and to avoid a debt restructuring. This is because his track record and campaign announcements are consistent with macroeconomic stability and economic growth.?
Gottlieb says that ?a convincing victory would be good for credit risk over the medium term,? but alerts that the potential for surprise stems from incumbent President Mejia?s recent populist pronouncements, which could marginally erode Fernandez? support and force a second round of voting on June 30. ?We see a Fernandez win as facilitating the closing of the financing gap without a restructuring of sovereign bonds because the chance of more stability ahead provides the best chance of attracting new resources.?
Furthermore, he states: ?While a successful surge by President Mejia?s campaign could undermine the needed 50% of the vote to win outright, second round simulations suggest Fernandez would still win 63% to 30%. However, a prolonged election (run-off would be June 30), particularly when one out of every two Dominicans thinks there will be fraud in the election, could spark instability and violence, providing further noise in bond prices.?
The analyst continues: ?Leonel Fernandez is considered a market-friendly candidate thanks to a track record during his administration that includes fiscal discipline, low inflation, privatization and trade openness.? He mentions that Fernandez? 2004-2008 government platform is ?similar to policies he pursued in office and hard to distinguish from the basic policies embedded in the current IMF program.? But he also points out that Fernandez ?has expressed a strong preference for lower taxes and seeks to maintain fiscal discipline via controls on public spending which he argues has grown irresponsibly.?
The analyst also discusses President Mejia, who is running for re-election on the PRD ticket. He writes that Mejia ?has shown a consistently populist and statist response to economic problems including the bank bailout and the renationalization of two electricity distribution companies.? He explains that while Mejia ?has expressed a commitment to free trade, the IMF program and fiscal austerity,? he also ?has consistently sought to consolidate domestic support via promises of handouts, a refusal to reduce the public sector payroll and support for price controls.? He mentions that Mejia was the first President to issue global bonds, opening the country up to more vulnerability from global capital markets. He also comments that ?the very political nature of the responses to largely economic crisis has likely worsened the economy?s fallout.?
For the report, see http://dr1.com/news/2004/051304_gsdrfax.pdf