Corruption scandals hit political parties hard
In Q3 economic activity seems to have recovered as a result of the recent monetary stimulus. In July, GDP growth (measured IMAE) was 3.1%, and in August it was 5.1%. Despite the upturn, the trend seems to point to a slowdown in growth and a convergence towards the long-term rate (5%) or a moderately lower level.
Between January and September, cumulative inflation reached 2.42%, whereas year-on-year inflation reached 3.8%, putting the indicator on a trajectory to reach the 4% target. Expectations are that the exchange rate and the price level will remain stable for the rest of the year. Lower growth rates in Q3, stability in the oil bill and seasonal growth in foreign exchange earnings from tourism mean lower pressures on both prices and the foreign exchange market.
Although monetary policy was restrictive throughout H1, in recent months it turned flexible to support the restoration of growth. These measures contributed to the recovery of credit to the private sector, which stagnated during the first few months of the year. The impulse from monetary policy will lose steam in the coming months, and private credit will follow through, as well.
For the first time since 2004, for the period from January through September, a cumulative positive balance was recorded in the current account of the balance of payments. It reached USD 312.5 million thanks to a decline in imports and an increase in foreign exchange earnings. Nonetheless, as imports soar, despite increased foreign exchange earnings, by the end of the year we expect it to turn negative, reaching a deficit equivalent to 1.2-1.5% of GDP. However, this would still be one of the lowest levels registered in years. Net International Reserves are projected to close at USD 6.35 bn.
Consolidated fiscal data of the central government is available through August and continued to show a lower-than-expected performance in expenditure. However, a change is foreseen in the coming months as expenditure figures move closer to target. In addition, revenues could be affected as the economic slowdown takes a toll on tax collection. We expect that at the end of the year, the central government deficit will close slightly above the target level (2.5-2.7% of GDP).
Two new surveys show that the Dominican population has become more pessimistic, that there is a significant decline in support for all political parties and for all politicians, and that President Medina, despite having less support than before, and despite the damage that corruption cases have done to his image, is the most highly rated politician.
According to the CID-Hoy survey, while in 2016, 52% perceived that the country was heading in the right direction, and 44% the wrong one, in September 2017 only 19% said the country is on the right course, and 79% said it is on the wrong one. This is a dramatic shift in the perception of the population and could have significant political consequences.
Corruption cases appear to have significantly affected the credibility of all political parties, not just that of the PLD. The Mark Penn-Hoy survey indicated that 58% of the adult population says it does not support any political party. In April 2016, only 37% said they did not have a preference for any party. At that time, 40% said they preferred the PLD and 16% the PRM, but in September 2017 the preference for the PLD fell to 29% and for the PRM to 9%. Only 5% said they preferred any of the remaining parties.
Also, the CID-Hoy survey revealed that, while in January 2017, 81% of the adult population said that the President always or almost always acted for the benefit of the people, by September 2017 that percentage had fallen to 54%. The percentage of those who said he never or hardly ever acted to benefit the people grew from 14% in January to 41% in September. Compared to other politicians, Medina maintains a favorable perception, although it has declined. Currently, 64% of the population has a favorable perception of the President while 35% has an unfavorable opinion. Luis Abinader, former presidential candidate for the PRM, received a 53% favorable perception and an unfavorable perception of 39%, whereas former Presidents Leonel Fernández and Hipólito Mejía got 34% and 39%, respectively, but they both sustained an unfavorable perception of more than 55%.
A new corruption scandal exploded in the government as a lawyer implicated in extortion was assassinated, presumably on orders of a top regional PLD figure and head of a government office. This case adds to others, further damaging political parties and the government´s credibility.
Negotiations for the Pact on Electricity came to an end. We’ll discuss its content when the final document is released. We maintain our skepticism because we do not expect that the agreements reached will move the sector in a substantially different direction.
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