At least two and perhaps three serious impediments face the renewal of the IMF standby agreement, which was suspended due to overspending by the outgoing Mejia administration, as reported in Hoy newspaper today. Economic editor Mario Mendez writes that the different teams of experts for the transitional phase cannot get the numbers to match to the IMF?s demands.
Another issue is the differences between the tax reform that finally may be proposed by the PRD-Mejia administration?s economic technicians and advisors and that prepared or supported by the PLD economic team of Leonel Fernandez. The proposal must be approved in a PRD-majority Congress.
A possible third obstacle is to find funding to close the US$100-million gap in the foreign debts this year ? an amount not covered by the Paris Club agreements. With reference to the tax reform proposals, the editor says that there are only ten days left for the new government team to submit its proposal so President Mejia can forward it to Congress.
One of the problems is that so far the team has not found a way to get the numbers to correspond to the objectives set out by the IMF, and they are afraid of imposing too many new taxes on an economy that is considered to be in recession. Public spending cut-backs seem to be limited to the removal of subsidies on propane gas and part of the electricity subsidies, but it is still up in the air as to whether or not this will happen.
Even if the government teams can put together a tax package that meets the IMF criteria, it is not certain that Congress would pass it without any modifications that would keep it within the agreement?s boundaries. With regard to the restructured foreign debt that was negotiated through the Paris Club, the European group asked that US$100 million be sought in order to give comparable treatment to all debts owed. The Paris Club would accept almost any type of loan to cover this debt, except one that is tied to fiscal income, so that one type of creditor is not favored over another type of creditor.