Press Release No. 10/506

Press Release: IMF Executive Board Completes Fourth Review Under Stand-By Arrangement for Dominican Republic, Approves US$168.1 Million Disbursement

December 20, 2010

The Executive Board of the International Monetary Fund (IMF) has completed the fourth review of the Dominican Republic’s economic performance under a program supported by a 28-month Stand-By Arrangement (SBA). The completion of the review enabled the immediate disbursement of an amount equivalent to SDR 109.45 million (about US$168.1 million at current rates), bringing total disbursements to an amount equivalent to SDR 547.25 million (about US$840.4 million at current rates). Data revisions indicate that the end-December 2009 performance criterion on the consolidated public sector deficit was temporarily breached by a small amount which was deemed to be irrelevant from a macroeconomic perspective and the Executive Board approved the relevant waiver of the related condition.

The SBA was approved on November 9, 2009 (see Press Release No. 09/393), for an amount equivalent to SDR 1,094.5 billion (about US$1.7 billion), or 500 percent of the Dominican Republic’s IMF quota. The first review of the program was completed on April 7, 2010 (see Press Release No. 10/137), for an amount equivalent to SDR 79.27 million (about US$121.7 million at current rates). The second and third reviews were completed on October 22, 2010 (see Press Release No. 10/399), for a combined amount equivalent to SDR 158.53 million (about US$243.5 million at current rates).

Following the Executive Board’s discussion of the Dominican Republic on December 17, Murilo Portugal, Deputy Managing Director and Acting Chair, made the following statement:

“The economic recovery remains robust and fiscal consolidation and structural reforms under the program are moving forward. However, significant challenges remain in raising fiscal revenues and lowering untargeted electricity subsidies. The risk of overheating also needs to be considered.

“The authorities have taken measures to raise revenues and cut expenditures to meet the 2010 fiscal targets. They have also submitted the 2011 budget to the Congress in line with the fiscal consolidation under the program. If revenues above program projections materialize, they could be used to finance additional public investment, leaving the program targets unchanged.

“The central bank is committed to remove policy accommodation by raising the policy rate, as the output gap is narrowing and inflation is close to the central bank’s target. It would be important to increase exchange rate flexibility to accommodate external shocks. The central bank is also working toward a smooth transition to an inflation targeting framework. The authorities remain committed to the central bank recapitalization plan to safeguard the credibility of monetary policy.

“The electricity sector reform remains one of the principal challenges facing the authorities. The recent change in the management of the electricity distribution companies and the increase in the electricity tariffs in December are important first steps in this process. It will be important to continue tariff reform in 2011 toward a flexible regime.

“The authorities plan to continue pursuing an active structural reform agenda to improve the tax system, mostly through rationalization of exemptions; advance the electricity sector reform to eliminate untargeted electricity subsidies; improve banking supervision; develop local debt markets; introduce full inflation targeting; and improve the coverage of the social safety nets.”