Medina Headed for Landslide Win
As campaigning for the May 15th general election enters the home stretch, nothing has surfaced to dramatically change the forecasts: President Danilo Medina and his PLD continue to head toward a landslide first-round victory. Two reputable opinion polls found that Medina’s popularity had even increased, to 59%-62%, twice that of challenger Luis Abinader of the PRM.A comfortable victory for Medina and the PLD, both in the presidency and Congress, promises fiscal and monetary policy stability over the medium term, and stability in the value of Dominican assets. But this situation also means that the reform agenda is unlikely to be pursued rapidly.
Though economic activity looked weak in January, it recovered powerfully in February. The IMAE was up 5.7% for the first two months of the year, compared with the same period in 2015. Inflation continues to be weak, as low oil prices persist. Prices remained virtually unchanged in March (-0.01%), accumulated inflation for Q1 reached -0.58% and y/y inflation was 1.59%. Inflation continues to be significantly below the lower boundary of the target range (4% +/- 1%). Monetary policy shows signs of moderating, and securities sales expansion seems to be slowing.
Central Bank reserves have dipped to $5.07 billion, though they are still above early 2015 levels. The Bank has taken advantage of the favorable external climate to strengthen its reserve position, consistent with moderated monetary policy. In March, the exchange rate continued stable. Spending picked up sharply in January/February, from January/February 2015. That rate of increase is unusual, even for an election year. The explanation lies in the significant acceleration of public investment. That left budget results largely negative, at the equivalent of 24.7% of the annual projected deficit. But, following the election year pattern, we expect H2 spending to fall into line with budget goals.
The fiscal issue has resurfaced in the public debate, at a time when candidates are reluctant to discuss it. Medina was obliged to acknowledge the fiscal stress and the debt problem, though, and made a plea for a broad discussion toward reaching a so-called Fiscal Pact, aimed at rearranging the tax burden and achieving greater fiscal sustainability. We doubt Medina, or any other candidate, will propose a tax reform now. But, if he wins, we foresee Medina convening a national dialogue about this issue early in his next term.
Now read on...
Register to sample a report