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Dominican Republic: Staff Report for the 2009 Article IV Consultation and Request for a Stand-By Arrangement - Informational Annex

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International Monetary Fund
Published Date:
May 2010
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Annex I-Relations With The Fund (as of September 30,2009)

I. Membership Status: Joined: December 28, 1945 Article VIII

A. Financial Relations

II. General Resources Account:

SDR Million% Quota
Quota218.9100.00
Fund holdings of currency507.84232.00
Reserve Tranche Position0.000.00
Lending to the Fund Holdings Exchange Rate

III. SDR Department:

SDR Million%Allocation
Net cumulative allocation208.83100.00
Holdings178.1385.30

IV. Outstanding purchases and Loans:

SDR Million% Quota
Stand-by Arrangements288.94132.00

V. Latest Financial Arrangements:

Amount
Date ofExpirationApprovedAmount Drawn
TypeArrangementDate(SDR Million)(SDR Million)
Stand-ByJan 31, 2005Jan 30, 2008437.80437.80
Stand-ByAug 29, 2003Jan 31, 2005437.80131.34
Stand-ByJul 09, 1993Mar 28, 199431.8016.80
VI. Projected payments to Fund 1/(SDR Million: based on existing use of resources and present holdings of SDRs):
Forthcoming
20092010201120122013
Principal96.32110.7672.239.63
Charges/Interest0.953.452.030.770.12
Total0.9599.77112.7973.009.75

VII. Safeguards Assessment. The BCRD was subject to a safeguards assessment with respect to the Stand-By Arrangement approved on January 31, 2005. The assessment, completed on April 27, 2005, noted that the BCRD implemented a number of earlier safeguards recommendations, but also identified vulnerabilities mainly in the areas of internal controls over the reporting of monetary data to the IMF, financial reporting and external audit.

VIII. Article IV Consultation. The last Article IV consultation was concluded by the Executive Board on January 30, 2008. The First Post-Program Monitoring Review was concluded on January 12, 2009.

IX. FSAP Participation. An FSAP update was completed in March 2009. A Financial System Stability Assessment report for the Dominican Republic was issued on May 20, 2002. The corresponding FSAP report was issued in November 2001.

X. Technical Assistance has been substantial since 2004.

XI. Resident Representative. The Fund representative office was closed in July 2008.

XII. Other. The Dominican Republic has not yet ratified the Fourth Amendment.

Annex II—Relations with the World Bank Group

1. The World Bank’s total loan commitments in the Dominican Republic amounts to US$326.2 million, of which US$234.0 million remains to be disbursed. The loan portfolio consists of ten loans: seven for investment (Water and Sanitation in Tourist Areas, Early Childhood Development, Health Sector Reform I and II, Youth Development, Social Protection -including an additional financing of US$10 million- and Energy Distribution); two for Technical Assistance (Financial Sector and Energy Sector); and an Emergency Recovery Loan. The Water and Sanitation in Tourist Areas loan, the Health Sector Reform II loan and the additional financing for Social Protection will be signed by the end of November, 2009 and their congressional ratification is expected to take place before the end of the year.

2. Two DPLs have been recently negotiated and their congressional ratification is also expected to take place before the end of 2009.These are: the Public Finance and Social Sector DPL and the First Performance and Accountability of Social Sectors DPL.

3. One investment project is under preparation: Municipal Development Project (US$20 million). The World Bank Group portfolio also includes additional commitments from the IFC and MIGA.

4. Portfolio performance in the Dominican Republic is starting to improve after the last FY09 setback. As of October 2009, the disbursement ratio is 14 percent, above of the regional (Latin-American and the Caribbean) and sub-regional (Caribbean) average of 7.8 and 9.7 percent respectively; commitments at risk are 7.7 percent and projects at risk are 10 percent. If the portfolio follows the trend observed in the first quarter of FY10 (July-August 2009), we could expect significant improvements in its performance by the end of the year.

5. A comprehensive set of analytical studies has been completed in recent years. In FY 2009, a Growth Study CEM (Country Economic Memorandum), an update of the Financial Sector Assessment Program, a new Country Partnership Strategy (FY09-FY13) and an update of the Report of the Observance of Standards and Codes (ROSC) in Accounting and Auditing. The Bank will be delivering in November 2009 a set of Policy Notes that have been feeding the National Development Strategy.

Dominican Republic: Recent Technical Assistance Missions
Mission titleStart dateEnd dateNumber ofDepartment
members
National accounts statistics1/11/20041 /23 /20 041STA
GDDS: metadata development3/15/20043 /20 /20 041STA
National accounts statistics4/19/20044/30/20041STA
Money andbanking statistics and GDDS development6/30/20047/14/20041STA
GDDS: metadata development for real sector7/11/20047/16/20041STA
GDDS: metadata development for government finance statistics7/11/20047/16/20041STA
Balance of payments statistics: peripatetic expert: 3 of 310/4/200412/3/20041STA
ROSC datamodule8/3/20058/16/20056STA
Government finance statistics4/26/20075/11/20071STA
Tax reform-discussions with authorities4/16/20044/17/20042FAD
CARTAC-VAT implementation4/19/20044/23/20041FAD
Tax Administration diagnostic mission with CARTAC2/24/20053/9/20054FAD
Public expenditure managementdiagnostic mission8/14/20058/28/20054FAD
Public expenditure management follow-up mission7/25/20058/5/20054FAD
Restructuring of fiscal institutions, treasury modernization, and budget7/26/20068/8/20064FAD
coordination.
Tax reform-discussions with authorities10/10/200610/13/20062FAD
Bank restructuring2/2/20042/13/20042MFD
AML/CFT2/9/20042/13/20043MFD
Monetary operations3/1 /20043/12/20041MFD
Deve lop bank resolution strategy3/8/20043/19/20042MFD
Bank restructuring7/21 /20047/23/20042MFD
AML/CFT controls for central bank operations7/27/20048/2/20041MFD
Bank restructuring8/10/20048 /13 /20 042MFD
Bank restructuring3 /13 /20 053 /18 /20 054MFD
Electronic forex trading platforms and regulations5/16/20055/20/20052MFD
Banking supervision5/30/20056/2/20051MFD
Bank restructuring7/26/20057/29/20051MFD
Asset recovery8/17/20058/26/20051MFD
Asset recovery11/29/200512/6/20051MFD
Bank restructuring1 /23/20062/2/20061MFD
Monetary policy and operations3 /18 /20 063/31 /20068MFD
Ce ntra l b ank reca pitalizatio n3/20/20063/27/20063MFD
Debt management3 /20 /20 063/27/20064MFD
Asset re covery6/26/20067/1/20061MCM
Consolidated supervision7/17/20067/21/20065MCM
Debt management and central bank recapitalization1 1/6 /20 061 1 /15 /20 065MCM
Bank ing law3 /12/20 073 /13 /20 072MCM/LEG
Asset recovery3/1 5/20073 /23 /20 071MCM
A. IBRD and IDA Operations 1
LoanSectorCommitmentsDisbursementsUndisbursed Amount
DO: Telecom Regulatory Reform /2TELECOM12.310.32.0
DO(APL1)Water&Sanitation inTourist AreasWATER27.50.027.5
DO-EARLY CHILDHOOD EDUCATION PROJECTEDUCATON42.026.715.3
DO-HIV/AIDS Prevention & Control Proj./3HEALTH25.020.44.6
DO-Health Reform Support (APL)HEALTH30.025.54.5
DO Financial Sector Technical AssistanceFINANCIAL12.55.57.0
DO Power Sector Rogram Loan /4ENERGY150.0100.050.0
DO Power Sector TA ProjectENERGY7.35.81.5
DO Eectricity Distrib RehabilitationENERGY42.00.141.9
DO Social Sectors Investment RogramSOCIAL PROTECTION29.40.728.7
DO Youth Development ProjectSOCIAL PROTECTION25.05.819.2
DO (APL2) Health Ref IIHEALTH30.50.030.5
DO Emergency Recovery & Disaster MgmtEMERGENCY80.022.257.8
B. IFC Operations
LoansEquityQuasi-EquityParticipants
Held87.6633.8952.279.25
Disbursed87.6633.8952.279.25
As ofOct 8,2009
C. MIGA
2000200120022003200420052006200720082009*
Outstanding gross guarantees152.4181.4242.8183.791.378.7157.3127.9126124.7
D. IBRD and IDA Loan Transactions(Fiscal year)
199819992000200120022003200420052006200720082009
Disbursements11.342.87750.852.441.971.240.439.469.174.88.5
Repayments24.622.720.1422.4923.827.134.637.935.536.940.622.0
Net lending-13.320.156.928.428.614.836.62.53.932.2134.3-13.4
Valuation adjustments-17.76.70.3-1.30.8
Debt outstanding212.3239.1295.6322350.7365.3401.2393402.6435.16477.99461.2
Interest and charges14.714.819.422.5222118.819.921.1422.62510.7

Annex III—Relations with the Inter-American Development Bank

1. In 2009, the IDB estimates disbursements for US$285,7 million, excluding a probable US$300 million disbursement from the Fiscal Strengthening Program, to be approved in October 2009 (see below).

Dominican Republic: Relations with the Inter-American Development Bank(As of October 09, 2009, in millions of U.S. dollars)
A. Operations
SectorCommitmentsDisbursedUndisbursed
Amounts
Agriculture55.053.71.3
Science and Technology---
Urban Dev. And Housing---
Education80.061.019.0
Labor Market, Training, and Transfers10.05.84.2
Sanitation31.36.724.6
State Modernization234.0134.299.8
Health---
Transportation50.010.539.5
Private Sector Development9.49.4-
Disaster Prevention25.020.34.7
Energy40.0-40.0
Social Investment70.0-70.0
Total604.7301.6303.1
B. Loan Transactions
B. Loan Transactions
2000200120022003200420052006200720082009 1/
Disbursements58.3142.4184.1155.1254.2135.7118.1109.5137.4285.7
Repayments38.445.550.7118.863.967.075.5171.7167.4135.9
Net Lending19.996.9133.436.3190.368.742.6-62.2-30.0149.8
Interests and Charges33.236.040.948.052.056.066.166.062.356.6
Subscriptions and Contributions7.30.70.50.44.03.82.11.90.00.0
Net Transfer-20.660.292.0-12.1134.38.9-25.6-130.1-92.393.2

2. As of October 2009 the Bank is close to approving a Fiscal Strengthening Program (US$500 million), which would contemplate additional disbursements in two tranches (US$300 million in 2009 and US$200 million in 2010). For 2010, the Bank will work in the preparation of three investment projects: the second phase of the Program to Support an Agricultural Competitive Transition (US$30 million); the Education Decennial Plan Support Program (US$39 million); and the second phase of a Social Protection Program (US$35 million). Additionally, the Bank is currently in the final stages of the design of the IDB Country Strategy for the period 2009-2012.

Annex IV—Statistical Issues

General issues and data adequacy for surveillance

3. Data provision has some shortcomings, but is broadly adequate for surveillance. The authorities are working to correct weaknesses in their statistical database. The country has participated in the General Data Dissemination System (GDDS) since November 2005.

4. In 2005, a data ROSC mission assessed the statistical system, which is highly centralized in the Central Bank of the Dominican Republic (BCRD). The mission found that notwithstanding recent efforts to improve the quality of macroeconomic statistics, important weaknesses remained. The legal framework is adequate for monetary and balance of payments statistics, but not for other macroeconomic statistics. In most areas the macroeconomic statistics should more closely follow current international methodologies, and source data need to be more fully developed. Statistical techniques are broadly adequate, except for the significant shortcomings of the consumer price index (where weights and reference periods are not aligned). Periodicity and timeliness of data meet or exceed GDDS recommendations. Revision analysis and studies are generally absent or not disseminated.

Real sector statistics

5. GDP data. Five STA missions from January 2002 to April 2004 assisted the BCRD in compiling consistent quarterly GDP estimates, and updating the base year of the annual series to 1991. Although a new series for the period 1991-2003 was published in July 2004, the new series was not immediately incorporated in the official quarterly GDP figures. The revised annual and quarterly series for the period 1991-2005 were released on March 16, 2006. The revised GDP estimates are, on average, 17 percent higher than the previous ones. The new base year of 1991 is already outdated as international guidelines on national accounts compilation recommend updating the base year at least every five years.

6. CPI data. The CPI weights are based on the 1997-98 household expenditure and income survey and need to be updated. The 2005 data ROSC noted the need for appropriate adjustments for seasonal and missing price imputations, changes in product specifications and quality, and new products. The CPI also needs to take into account imputed rent for owner-occupied dwellings and dwellings used by third parties without payment.

7. Other. Data are not always reported for publication in International Financial Statistics (IFS) with the required timeliness and have weak coverage of major real sector indicators. There are no available series for producer prices and wages (except minimum wages). Quarterly and annual industrial production data are posted on the central bank’s website.

Government finance statistics

8. The April 2002 multisector technical assistance mission and the August 2005 data ROSC mission identified significant shortcomings in the fiscal data on the general government. These shortcomings included (i) legislation that does not clearly define the responsibility for collecting, compiling, and disseminating government finance statistics (GFS); (ii) data sources and data collection procedures that need to be more fully developed; (iii) an analytical framework for compiling GFS that is not fully aligned with international guidelines; (iv) lack of formal procedures to coordinate the exchange of information among GFS compilers; and (v) the absence of an integrated system of financial management that supports GFS compilation.

9. The 2002 mission prepared an action plan to improve collection, compilation, and dissemination of fiscal data, and elaborated a table to bridge the budgetary and the Government Finance Statistics Manual 2001 (GFSM 2001) classifications. The 2005 mission concluded that the number of staff of the State Secretariat of Finance (SSF) was insufficient for the compilation of GFS and that the coverage of the GFS remained incomplete. An April/May 2007 statistics mission assisted the BCRD and the SSF in improving the collection, compilation, and reporting of GFS, on accrual and cash bases, based on the GFSM 2001. The BCRD compiles and disseminates annual GFS data published in the Government Finance Statistics Yearbook.

10. The country is currently participating in a regional project for the harmonization of GFS for Central America, Panama, and the Dominican Republic (CAPDR). As part of this project, a June 2009 mission provided further assistance to tackle the issues raised in the previous paragraphs and assisted the authorities in improving the quality of annual accrual-based data.

Monetary and financial statistics

11. The monetary statistics currently reported to WHD are affected by the following issues: (i) lack of sufficient detail to allow for a proper sectorization of accounts and classification of financial instruments; (ii) concepts and principles underlying valuation, classification of financial instruments, and sectorization of institutional units are inconsistent with internationally accepted methodology; (iii) the institutional and financial instrument coverage is not comprehensive; and (iv) the system for reporting lacks a consistent methodology. To address these issues, April 2003 and July 2004 monetary statistics missions began the development of an integrated database to be used by the authorities, STA, and WHD, based on the methodology recommended in the Monetary and Financial Statistics Manual. Although the methodology applied in the new database is sound, several problems remain, including lack of data on financial cooperatives and offshore operations of resident banks.

12. The country began to report monetary data to STA in the standardized report forms (SRFs) in August 2007, which are being used for national publications as well since July 2009. SRFs based data overcome the shortcomings described in the previous paragraph; however, the lack of data on financial cooperatives and offshore operations of resident banks still remains. The SRFs were developed in the context of a regional project for the harmonization of monetary and financial statistics in Central America and the Dominican Republic that ended in December 2008.

External sector statistics

13. Since February 1997, balance of payments statistics have been compiled according to the fifth edition of the Balance of Payments Manual. However, problems of coverage remain for imports, capital transfers, income, and the financial account, giving rise to large errors and omissions. Three technical assistance missions during 2002-04 have assisted the BCRD in improving balance of payments statistics and preparing the International Investment Position (IIP) data, which are now available up to 2007. A follow up mission was conducted in August 2007 that focused on sample surveys and statistical techniques to improve the compilation of direct investment, portfolio investment, and other nonfinancial private sector assets and liabilities, as well as domestically issued public debt held by nonresidents. A 15-month action plan with recommendations for improving the balance of payments and IIP statistics was prepared by the mission in consultation with the BCRD. The compilation of the external accounts complies with the requirements of the GDDS in terms of periodicity and timeliness.

Data dissemination

14. The authorities publish quarterly reports on economic developments. The reports contain timely preliminary data on real GDP, consumer prices, interest rates, exchange rates, balance of payments, exports and imports, operations of the central government, and the banking system. The Quarterly Bulletin of the BCRD contains more detailed information on sectoral developments, but the bulletin is sometimes published with delays. The BCRD also maintains a website that presents selected data on a relatively timely basis.

Dominican Republic: Table of Common Indicators Required for Surveillance
As of October 6, 2009Date of latest observationDate

received
Frequency of

Data7
Frequency of

Reporting7
Frequency of

Publication7
Memo Items:
Data Quality -Methodologica l Soundness9Data Quality -Accuracy and Reliability8
Exchange RatesOct 200910/2/09DDM
International Reserve Assets and Reserve Liabilities of the Monetary Authorities1Oct 200910/2/09DDM
Reserve/Base MoneyOct 20099/18/09DDMLNO, O, LO, LOLO, O, O, O, LO
Broad MoneyOct 20099/18/09MMM
Central Bank Balance SheetOct 20099/18/09MMM
Consolidated Balance Sheet of the Banking SystemOct 20099/18/09MMM
2 Interest RatesAgust 20099/20/09DDM
Consumer Price IndexAugust 20099/19/09MMMO, O, O, OO, LNO, LNO, O, LO
Revenue, Expenditure, Balance and Composition of Financing3 - General Government4LO, NO, LO, LOLNO, O, LO, O, LNO
Revenue, Expenditure, Balance and Composition of Financing3 - Central GovernmentJune 20098/30/09MMM
Stocks of Central Government and Central Government-Guaranteed Debt5QQQ
External Current Account Balance20083/27/09QQQO, LO, LO, LOLO, O, LO, LO, NO
Exports and Imports of Goods and Services20093/27/08QQQ
GDP/GNP2009 Q29/15/09QQQLNO, LO, LNO, LOLNO, LO, LNO, O, LNO
Gross External DebtQQQ
International Investment Position620085/5/09QII

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