Exports to Haiti threatened by bans
In June and July economic activity accelerated. The Monthly Indicator of Economic Activity (IMAE for its Spanish acronym) estimated the increase in production for June at 6.5%, and for July at a surprising 7.5%.
Inflation in August with respect to July, as measured by the percentage change in the Consumer Price Index (CPI), remained in line with the average observed between May and July, reaching 0.32%. Accumulated inflation for the first eight months of the year stood at 1.17%, while the year-to-year change in CPI reached 0.43%. Inflation performance looks in line with the evolution of monetary aggregates, which remain relatively stable.
Interest rates rose in August, putting an end to the string of reductions observed since April. As of August 31, 2015, the lending rate (weighted average) increased by 134 points over the previous month.
During the month of June, the exchange rate remained almost unchanged as the external accounts continued to improve. For the first time in almost a decade, a current account surplus was registered in H1 due to increases in revenues from tourism, free zone exports, and in remittances, added to a decline in imports associated with a reduction in the oil bill. This more than counteracted the reduction in national export proceeds associated with a decline in prices of gold and silver, as well a moderate reduction in non-mineral exports. Foreign Direct Investment (FDI) inflows remained stable in H1 2015 compared to H1 2014.
Overall, the fiscal situation looks promising, although expenditures on energy make it a bit unclear. NFPS could reach 2% of GDP instead of the 2.4% set in the budget. Nonetheless, it depends on how total transfers to the electric sector perform through the end of the year. Authorities of both the electric sector and private generators have reached a deal concerning the debt accumulated by state-owned distribution companies. The total deal amounts to USD 834 million, involves a bank, a 55-month payment schedule agreed to by the state-owned holding of electric companies, and a 10% interest rate.
In recent weeks, political parties moved forward in formalizing alliances and, as a result, almost all parties and political organizations are either aligned with the PLD or PRM. This depicts an almost completely polarized electoral competition. The PLD made a formal alliance with the PRD, and the PRM with Frente Amplio and other small parties.
Recently, media reports said that the government of Haiti is preparing to implement a ban on imports through the border for 23 products. The new measure would reiterate that there is a strong interest in some Haitian sectors to reduce the participation of Dominican products in the Haitian market. Exports to Haiti represent 16% of total goods exports. If applied, this measure would violate several regulations, including some from the World Trade Organization (WTO). However, there is little that can be done. It is still unclear whether the measure will be implemented, so Haiti's long-term trade policy with the Dominican Republic remains undefined. In that context, uncertainty will be the norm, and the possibility of an external shock of medium intensity associated with growing barriers to trade is a serious possibility.
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