This statement provides additional information on developments since the issuance of the staff report for the 2009 Article IV Consultation and Request for a SBA for the Dominican Republic. This information does not change the thrust of the staff report.
I. Recent Developments
The latest economic indicators confirm that the recession continues. Economic activity remains weak, there are no pressure on domestic prices and the sharp contraction in trade and taxes is still ongoing.
Aggregate demand remains depressed. Non-oil imports fell by almost 25 percent in the first half of 2009 (yoy) and continued to fall at the same rate in the third quarter. Similarly, exports fell by over 35 percent in the first half of 2009 (yoy) and 30 percent in the third quarter. Electricity consumption was down 8 percent to August 2009 (yoy). Travel arrivals are the exception, having fallen 3½ percent in the first half of 2009 (yoy), they expanded by 1½ percent in the third quarter (yoy).
Inflation continues to be subdued. Headline inflation for October 2009 was 0.2 percent, taking the 12-month rate to -0.3 percent and cumulative inflation in the year to 4.5 percent.
Monetary policy remains accommodative. The monetary council met on October 30 and decided to leave interest rates unchanged. The growth of monetary aggregates and private credit remains low.
The foreign exchange market continues to be stable. The Dominican peso stayed flat with respect to the U.S. dollar in October 2009, after having depreciated only 3 percent in the previous 12 months. The Central Bank had virtually no intervention in October (net sales of US$75 million).
The fiscal position remains tight. Preliminary information indicates that overall revenues fell by 10 percent in the period January-September 2009 (yoy). The fall in revenues was matched by a similar fall in expenditures, with current expenditure down 2 percent and capital expenditure down over 30 percent.
II. Debt Issues
There are no sovereign arrears to external creditors. However, there are potential claims on the government. In addition, the authorities are carrying out an inventory of claims to ensure accuracy of the debt reporting system.
Clearance of arrears. In October 2009, the authorities settled arrears to external creditors for some US$16 million outstanding as of end-September 2009. Payments for about US$2½ million were made mostly to suppliers and about US$13½ million were reconciled and securitized with PDVSA (the state oil company of Venezuela) following the principles of the 2005 Caracas accord.
Potential claims on the government. There are potentially two large claims on the government: (i) an American company has threatened to sue the Dominican government in U.S. courts for US$100 million for breach of a contract signed in 2002 on a housing project that was never carried out; and (ii) the heir of a former owner of several companies expropriated in the early 1960s during the Trujillo administration is seeking compensation from the government. According to the claimant, the value of these claims could be over US$1 billion.
Debt verification. The authorities are conducting an exercise to verify the amounts recorded in their debt reporting systems. According to the system, there are unverified claims for about US$6 million to several foreign suppliers of the public electricity corporation (CDEEE) from the late 1980s for which records are incomplete and partly inconsistent; the records do not allow yet to form a view as to whether the claims are valid. If the verification exercise determines that these claims are not valid, staff will propose to take them out of the debt reporting system.