VZCZCXYZ0000
PP RUEHWEB

DE RUEHDG #0963 2371821
ZNR UUUUU ZZH
P 251821Z AUG 09
FM AMEMBASSY SANTO DOMINGO
TO RUEHC/SECSTATE WASHDC PRIORITY 3259
INFO RUEHWN/AMEMBASSY BRIDGETOWN 2267
RUEHKG/AMEMBASSY KINGSTON 2966
RUEHBH/AMEMBASSY NASSAU 1100
RUEHPU/AMEMBASSY PORT AU PRINCE 5038
RUMISTA/CDR USSOUTHCOM MIAMI FL

UNCLAS SANTO DOMINGO 000963 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAID EFIN EINV IMF DR
SUBJECT: REVENUE SHORTFALLS SEND THE GODR BACK TO THE IMF 
 
REF: A. SANTO DOMINGO 286 
     ¶B. SANTO DOMINGO 50 
 
¶1. President Leonel Fernandez, at an 8/21 meeting of the 
GoDR's economic team, instructed Central Bank Governor Hector 
Valdez and Secretary of Finance Vicente Bengoa to head a 
delegation to Washington this week to seek an agreement with 
the International Monetary Fund (IMF) aimed at obtaining a 
loan for USD 200 million in emergency budget support.  The 
GoDR also expects that an IMF agreement will free up the 
disbursement of World Bank and Inter-American Development 
Bank (IDB) loans.  Those loans total USD 700 million, of 
which only USD 120 million has been disbursed, with the 
remainder pending the GoDR's implementation of economic 
reforms, principally in the electricity sector (Ref B). 
 
¶2.  The mission to the IMF represents an about face by the 
GoDR, which has been resisting calls for the past year from 
the private sector, economists and international financial 
institutions to seek a new IMF accord in response to the 
international financial crisis and its negative impact on the 
DR.  President Fernandez, in his 2/27 State of the Union 
address, provided assurances that the Government would be 
able to finance its budget (Ref A).  When it became clear 
that shortfalls in revenue, non-disbursement of loans and 
lower than expected PetroCaribe financing (only one-third of 
the expected USD 300 million has been received according to 
JP Morgan) were creating a large gap, the President proposed 
a USD one billion sovereign bond issue.  Congress adjourned 
its last session on 8/13 without approving this proposal, 
however, and international financial conditions made it 
obvious that the GoDR would not be able to market such an 
issue at reasonable rates, if at all. 
 
¶3.  Without alternative sources of funding, by mid-August the 
GoDR was staring at an unfinanced budget deficit of USD 277.8 
million.  Hopes that revenues would begin to pick up during 
the tourist high season were dashed, however, as the 
shortfall between revenue and expenditures for the first 18 
days of August totaled USD 24.8 million. 
 
¶4.  The Central Bank also announced on 08/24 that the GoDR 
may draw upon its upcoming general and special allocations of 
177 million in IMF Special Drawing Rights (SDR) (USD 275.3 
million) to bolster its foreign exchange reserves and its 
capacity to address balance of payments needs. 
 
¶5.  COMMENT:  With other financing options foreclosed, 
Fernandez and his economic team had little choice but to turn 
to the IMF.  Perhaps surprisingly in the Latin American 
context, this decision has thus far garnered nearly universal 
praise.  The private sector and economists have applauded the 
move, as the IMF offers the lowest cost for financing and 
loan conditionality should result in improved fiscal 
responsibility.  Miguel Vargas, leader of the largest 
opposition party, the Dominican Revolutionary Party (PRD), 
also expressed approval, noting that the PRD has long been 
calling for an IMF agreement and that it expects an accord 
will lead to increased transparency and less room for 
corruption and financial shenanigans by the ruling Dominican 
Liberation Party (PLD).  END COMMENT). 
BULLEN