Economy is paralyzed after COVID-19 cases skyrocket
The Ministry of Public Health reported on March 29th that the number of COVID-19 cases had reached 859, up 140 from the previous day. The case rate has surged, and 39 people have died.
Congress has declared a state of emergency, giving the president exceptional powers for 25 days. The government announced that it would expand treatment capacities, and has ordered the closure of non-essential economic activities and prohibited public activities involving crowds. It has closed the border to passenger traffic, and has ordered a 5 p.m. to 6 a.m. curfew.
A drastic decline in economic activity has resulted. As in other countries, the supply shock has been brutal. Although it is too early to make serious predictions, the output decline may be the largest ever recorded, perhaps in the double digits. The number of cases keeps growing, suggesting that the government may soon tighten social isolation measures further.
Under an economic stimulus package, the policy rate was cut by 100 bps, from 4.5% to 3.5%; liquidity facilities to the financial system were provided for up to DOP 72 billion (about $1.3 billion), and in foreign currency for up to $622.4 million; and financial regulations were significantly relaxed. Tax obligation compliance dates were postponed, which will help provide some oxygen to businesses.
The government also announced a significant social compensation and employment protection package. The number of households receiving food distribution and cash transfers will rise from 850,000 to 1.5 million, and the monthly transfer will rise from about $20 to $93 for two months. Job protection will be addressed through a new FASE program, which will subsidize worker pay for two months, up to DOP 8,500 ($157) per month. Overall financing amounts to DOP 32 billion ($592 million) or 0.7% of GDP ($150 million), will be provided by the World Bank through a pre-approved loan; $222 million will come from the labor risk fund; and a similar amount will come from a Central Bank loan to the government.
The outbreak arrived during a moment of good macroeconomic health. Growth was relatively robust, inflation was low, the external balance favorable and international reserves at a record high. Devaluation since February has been greater than expected, though. It is very difficult to predict exchange rate behavior now; FX supply and demand are being significantly curtailed, and the net effect is unclear.
The opposition leadership has shown maturity. Congress unanimously approved the state of emergency law, and all presidential candidates – though with some criticism -- have supported the government's actions.
The opposition defeated the PLD in the February 15th special municipal elections. This time, the elections proceeded smoothly. The opposition PRM and its allies won 91 mayorships (54%), 50 more than in the previous elections. The ruling PLD and its allies lost an equal number, winning 56 (33%).
The Dominican government and the Odebretch-Tecnimont-Estrella consortium reached an agreement in their dispute over the cost of the Punta Catalina Thermoelectric Complex (CTPC) coal plants. Both parties accepted an additional payment of $395.5 million. This means CDEEE will disburse $59.5 million, in addition to the $336 million already committed by the government for a guarantee fund to facilitate the completion of the project.
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