Government on the Defensive Over Corruption
Economic activity is slowing, according to official data. Between January and May, growth was up 4.2% from the same period in 2016, and up 5.2% between January and March. Inflation continues to be low. In May, the CPI shrank 0.14%, bringing accumulated ytd inflation to 0.96%, and annualized inflation (from May 2016 to May 2017) to 3.11%.
The Monetary Policy board left the interest rate unchanged at 5.75% in May, though the average lending rate plunged. Public spending to May was 35.9% of the total budgeted for the year, while revenues and donations reached 41.3%. Although the deficit was very low, investment spending is expected to drive it higher in H2.
The most important political news in June was a judge’s imposition of criminal coercive measures against the 14 defendants in the Odebrecht bribery case. The judge decided to jail these defendants preventively, in what was widely considered overkill. But the state of indignation and public pressure -- driven by the Green March-- seemed to have generated so much pressure that the judge caved.
The indictment by the Office of the Attorney General against high-level political figures initially appeared to have reduced pressure on the government and the governing PLD. But political relief was short-lived; public pressure has in fact increased, given widespread perceptions that the allegations have been made selectively, to protect President Danilo Medina and his inner circle. All eyes are fixed on the country’s largest Odebrecht project, contracted by the Medina administration: the $2 billion coal power plants at Punta Catalina. The Green March has demanded an investigation, and has accused Medina and the attorney general (Medina’s political subordinate) of covering up the truth.
The government's response to the Odebrecht scandal has been to act on other major corruption cases, to show that is in some way tackling corruption. But the government is still on the defensive, and lacking in political initiative. While we doubt this standoff will spiral into political crisis, we may be entering a new political era, with a far more active and vigilant citizenry. Still, the debate over the bill to rule political parties has moved in the right direction, and it seems a consensus has been reached on regulating party financing. This may reflect party concern over regaining credibility -- eroded through decades of shameful, undemocratic and corrupt behavior, and by growing public mobilization.
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