Odebrecht Accusations Stir Political Earthquake

DOMINICAN REPUBLIC - Forecast 02 Jun 2017 by Pavel Isa Contreras and Fabricio Gomez

Amid weeks of public speculation, the Attorney General has finally accused 14 people in the DR of participating in Odebrecht’s bribery scheme here. Most of the accused have high political profiles; many are close to ex-president Leonel Fernandez, among them former ministers; the president of the opposition PRM and top party leaders are among the accused; and one member of President Danilo Medina’s cabinet has also been accused, but no one from the president’s close political circle.

There are many suspicions over whether the accusations are selective -- specifically, protecting Medina and his circle, and precluding scrutiny over the largest contract with Odebrecht: the Punta Catalina coal plants, contracted under Medina.

Clearly the case will hit Leonel Fernández and his PLD faction very hard, and will also hurt the PRM. But it’s unclear how far corruption and civic mobilizations against impunity can impact the political system and governance in general, and how much these might contribute to desirable changes in the party system, politics and public administration. Results will likely be positive. But a big blow – dilution of court cases, widespread belief of selectivity-applied prosecution -- should not be ruled out. The latter would be a blow to Medina’s image, and increase the likelihood of a political vacuum.

The Green March is still very active – and the only significant locus of opposition to the government and the PLD. Mainstream opposition is perceived as weak.
Discussions of a possible Electric Pact have accelerated in recent weeks, with suggestions that a deal may be reached in summer. But so far the dialogue lacks a credible plan for loss reduction in distribution, the central issue that would make whole system financially viable. So the pact may be ”light” -- without specifics or a clear program that would cut losses, or the public subsidy.

Q1 2017 closed with a lower but still strong rate of economic expansion, at 5.2%. Cumulative inflation was 0.84%, while in March y/y inflation reached 3.14%, within the target range (4% ± 1%). The current account registered a $391.2 million surplus, and net reserves were $6.46 billion, $1.32 billion more than in March 2016. The budget was in deficit by DOP 24.0 million, equivalent to 28% of the year’s plan.

Expected GDP growth is about 5.5%, which could keep unemployment flat. Growth near potential output in 2017, prospects of currency devaluation as the dollar strengthens and the possible increase in the oil bill could heighten inflationary pressures.

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