IMF insists on eliminating subsidies

According to the IMF the Dominican government has two options to compensate for the resources that it will lose when it abolishes the exchange commission tax on dollars used to import anything into the Dominican Republic: one is to continue collecting the tax all year long, and the second is to eliminate the subsidies on propane and electricity.

A ‘source’ close to the government has told El Caribe that the IMF thinks that the government has to take a more “drastic” approach to the question of subsidies and that it should seriously think about ending them altogether. The source said that with the postponement of DR-CAFTA, the government has six months to keep up the exchange commission tax and obtain the finances it needs to balance out its income, but the source also questions what will happen when the time comes to enter the treaty. The source added that the government will have to find some way to get the money, and it is looking at cutting out the subsidies as one way to do it. While the IMF has not formally asked the Dominican Republic to eliminate the subsidies, it is obvious to the source that this will be a major theme for discussion this coming year. One of the goals set out by the IMF Stand-by agreement is the reduction of the electricity sector deficit, which is expected to reach US$800 million or RD$27.2 billion in 2006. However, this past Monday, CDEEE administrator Radhames Segura told reporters that the government had no plans to remove the subsidy. He pointed out that the subsidy was, indeed, a very important issue for the government, especially in view of the fact that what was originally set as a US$350 million subsidy, turned into a UD$502.3 million subsidy.