With Medina’s retreat, Abinader likeliest to become president
President Danilo Medina announced that he’d given up all efforts to run for a third consecutive term. Though he said his decision was motivated by his respect for the rules of the game, he in truth threw in the towel because he couldn’t achieve his goal.
And he hasn’t permanently given up. Now Medina’s efforts appear focused on two things: preventing his party rival Leonel Fernández from winning either the PLD nomination or the presidency, and achieving a constitutional reform that would allow him to run for president in the future. We believe he’ll fail at both efforts.
Our base scenario for the May 2020 election is unchanged: Fernández is likeliest to be named the PLD candidate, and to run against Luis Abinader, of the opposing PRM. No other PLD nominee has any chance of winning more than 2% of the vote. But we now believe Abinader is likeliest to win the presidency.
There are three main reasons for this. First, Fernández has a high disapproval rating. Second, Medina will do everything in his power to make Fernández lose, since, if he wins, Fernández would try to restore his control of the PLD, and push Medina out of the picture. Third, the public, especially the middle class, is weary of the PLD, and its record of corruption, clientelism and abuse of power.
In the PRM, things are clearer. Abinader will be the candidate. His has two challenges: to win the party nomination, while keeping former president Hipólito Mejía on board; and to articulate a broad alliance with other parties and political groups, in order to develop an electoral front against the PLD.
Political uncertainty has turned into a marked growth decline, with growth in Q2 at 3.7%, and H1 at 4.7%, respectively. July numbers will likely continue to be weak. In response, the Central Bank has shifted to an expansionary mode, authorizing liberalization of reserves in May and June, and two cuts in the monetary policy rate, first from 5.5% to 5%, then to 4.75%. The recent expansionary policy has yet to be noticed in monetary aggregates, except in lending to the private sector.
Though this stance translated quickly into an interest rate fall, inflation remains low. The Central Bank's net international reserves have risen, from $6.98 billion in June to $8.71 billion in July, due to the recent $2.5 billion global bonds placement. Political uncertainty has accelerated DOP devaluation, though devaluation since January is still very low.
We expect political stress and uncertainty to keep constraining investment and growth until the October primaries, abetted by continued adverse effects on tourist arrivals, this latter due to persistent negative headlines publicizing foreign tourist illnesses and deaths.
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