IMF Pressurizing Dominican Republic Over Fiscal Reforms

by Mike Godfrey, for LawAndTax-News.com, Washington

31 October 2006

After a meeting last week with Dominican Republic President Leonel Fernandez, IMF managing director Rodrigo de Rato, said that additional tax reforms are called for in order to stabilize the Republic's finances.

IMF's director for the Western Hemisphere, Anoop Singh, said that the short-range outlook is good for the Dominican Republic, but that fiscal adjustments are required to achieve financial sustainability.

Fernandez said that his government wants to continue meeting its commitments to the IMF.

The Dominican Republic, not to be confused with Dominica, has a 9m population. The Republic lies 1,000 kilometres east of the southern tip of Florida, in the same time zone as New York City. The capital, Santo Domingo, is the oldest city in the new world, where Christopher Columbus arrived in 1492 and the settlement of the Americas began.

The Republic experienced real annual GDP growth of 6.5% between 1992 and 2000, and after a dip, IMF growth estimates are for 5.5% in 2005 and 5% in 2006. Tourism is the country's primary industry and the major source of hard currency; in 2004 a record 2.9 million visitors generated more than USD 3.18 billion.

The Dominican Republic is a signatory to CAFTA - the Central American Free-Trade Agreement, something which will put pressure on the country's fiscal structure when CAFTA is implemented later this year.

The government is indeed contemplating fiscal reform to widen the tax base, according to the country’s banking superintendent, Rafael Camilo, but business leaders are calling for a cut in public spending instead. A previous government forecast of a zero deficit and a reduction in public debt to 43% of GDP this year (from 56% in 2003) is now seen as unattainable. The government now says it expects to finish the year 2006 with a primary surplus at 0.7%, “which is insufficient to achieve sustainability of the debt.”

However, a recent Moody’s report gave the Republic a B3 rating, citing a general improvement in the country’s economy, low debt ratios and strengthening of its fiscal situation.

Recommended