A year of definition

DOMINICAN REPUBLIC - Report 04 Feb 2019 by Pavel Isa and Fabricio Gomez

For obvious reasons, 2019 is a year of political definition towards the general elections of May 2020. The political parties must choose their candidates for President and Vice-President, the Senate (32 positions), the Chamber of Representatives (190 positions), and also for more than 350 local governments.

In this report we review the possible definitions faced by the six most important political parties. In aggregate terms, the electoral scenario will be configured based on two definitions: the presidential candidate in the ruling PLD, and the possibility that the opposition is able to articulate a broad front to confront the PLD with the aim of removing it from power.

In the PLD, former President Leonel Fernandez has, by far, the lead in the race for the nomination. The only person capable of defeating Fernandez in the race for the presidential nomination is President Danilo Medina, but he has a constitutional impediment to run again. Removing this impediment would require an amendment to the Constitution, but, for the moment, Medina does not have enough votes to achieve it and it is not clear that he has such intentions.Since PLD is in power, and opposition remains weak, either one of them could win the general elections. However, as Medina would be a nearly undefeatable candidate, the possibility of a constitutional amendment allowing him to run again is still on the table.

In the PRM, Luis Abinader will surely be, and for the second time, its presidential nominee. Former President Hipólito Mejía is also in the race but has little chance of winning. However, a very intense competition between both can reduce PRM’s chances because it would portrait a divided party at a time when unity and strength are crucial to challenge the almighty PLD. PRM would also need to articulate a strong coalition with most opposition parties in order to have a real chance to beat PLD, a chance that could be greater if Fernandez becomes the PLD’s nominee because he has a high rate of rejection. Such coalition is, however, still diffuse.

The rest of the parties will struggle to remain legally alive by building electoral coalitions, mostly with larger ones, because the new law on political parties introduced very stringent conditions, difficult to comply for many of them.

The joint macroeconomic framework of the Ministry of Economy, the Ministry of Finance and the Central Bank projects a 5% expansion of real GDP for 2019.Although the international context may provide important challenges, 2019 will be good for growth and the economy will continue the expansive path.

In January, monetary aggregates behaved as expected this time of the year as consumption declines and monetary policy tightens. In response, interest rates and intermediation margin in the banking system climbed. Also, in a seasonable fashion, demand for foreign exchange increased and net international reserves declined by USD 397.5 since December but still remain at a comfortable level, and the DOP monthly devaluation rate remained at 0.2%.

The Ministry of Finance disclosed to the media the figures for 2018. Total revenues grew by 13.1% and total expenditures of the Central Government 5.4%. The result was a reduction of the Central Government's deficit from 3.2% of GDP in 2017 to 2.4% of the GDP in 2018. The budget result for the Non-Financial Public Sector (NFPS) reached 2.6% of GDP. Both figures are moderately above the target set in the 2018 budget law. However, the deficit was not greater because the transfers for the recapitalization of the Central Bank barely reached 38% of what was budgeted. If the Central Government had complied with the recapitalization commitment, it would have reached 2.8% of GDP.

For 2019, the budget deficit is set to reach DOP 75.5 bn (or 1.7% of GDP), DOP 22.2 bn less than in 2018. Such target is based on two assumptions: that tax revenues grow by almost 15% and that subsidies to electricity drop to a half of what was observed in 2018.Both are audacious.

Now read on...

Register to sample a report