From the Executive Board

• Pages: 364-365

Page 364

Dominican Republic: Emergency Assistance

The IMF approved the Dominican Republic's request for financial assistance equivalent to SDR 39.7 million (about $56 million), under the IMF's policies on emergency assistance related to natural disasters, to support the government's economic adjustment program, and associated relief and rehabilitation efforts in the aftermath of Hurricane Georges.

The authorities' adjustment policies are based on a deepening of structural reforms and a continuation of prudent macroeconomic policies over the medium term, while allowing for accommodation of financial policies in the short term because of the damages sustained from the hurricane. The aim is to achieve a sustained increase in real GDP, reduce inflation, increase international reserves, gradually reduce quasi-fiscal losses, and eliminate domestic arrears.

The adverse impact of the hurricane on GDP growth and inflation is expected to be short-lived and limited. The 1998 growth rate of output is likely to be about Vi percentage point less than the originally forecast rate of IVi percent, with, however, most of the lost output to be recuperated in 1999 as a result of reconstruction efforts. The inflation rate is expected to be about 6 percent in 1998 and 4.5 percent in 1999, compared with 8.4 percent in 1997. The current account deficit is expected to widen to 3 percent of GDP in 1998 and to 4 percent in 1999, compared with 1.5 percent in 1997, and reflects a sharp acceleration of imports associated with reconstruction efforts, which are only partially financed by insurance payments and private remittances from abroad.

Fiscal policy includes already-planned expenditure cuts of about 1 percent of GDP, as well as additional revenue measures and further expenditure cuts to achieve virtual balance in the fiscal accounts in 1999. In addition to a continued reduction of inflation, monetary policy will aim at a modest buildup in international reserves during 1998-99.

The government is determined to press ahead with its ambitious structural reform agenda, which includes pension reform, trade liberalization, a new monetary and financial code, and a securities market law that will support a deepening of domestic capital markets.

The Dominican Republic joined the IMF on December 28, 1945, and its quota is SDR 158.8 million (about $224 million)...