Political party law remains deadlocked
Data available through May indicates that growth has been higher than expected, even compared to optimistic official forecasts. In May, real GDP growth (measured by the IMAE) reached 6.4% compared to May 2017, and between January and May, growth reached 6.6%. Construction stands out among economic activities with higher growth rates.
In May, the inflation rate was 0.26%, and accumulated inflation since January reached 1.21%. Year-over year inflation stood at 4.47%. This means inflation remains within the target range of the Monetary Program (4.0% ± 1.0%).
In May, the Central Bank continued to consolidate the contractionary monetary policy adopted during the first two months of the year. In that month, the restricted monetary base was 5.05% lower than that registered in December, and the broad monetary base was 11.65% lower. Money in circulation was 0.63% lower. From January to May, Central Bank titles in circulation grew by 11.34%, indicating that market operations have been the main policy instrument.
Between February and June, international reserves declined by USD 1.45 bn. Despite that, the level observed in May (USD 6.9 bn) was 13.5% higher than that observed in May 2017, and almost 2% higher than in December.
The exchange rate has remained stable since April. After two months (February and March) of accelerating depreciation, foreign exchange has become nearly rigid. Cumulative devaluation from December through May was 2.2%.
In both May and June, the Monetary Board decided to keep the monetary policy rate unchanged at 5.25%. The board has kept the rate unchanged since August 2017.
Because of the contractionary policy, at the end of May the average lending interest rate increased by 30 points with respect to the previous month. The borrowing rate declined by four basis points. This caused the margin of intermediation of the multiple banking system to increase from 6.73% to 7.07%.
The law of parties still has no clear future, and since our last report Danilo Medina has been showing more power and persistence than expected. The bicameral commission appointed to negotiate a deal between danilistas (aiming for a law that obliges parties to conduct open, simultaneous and mandatory primaries) and the rest of the Congress members (leonelistas and representatives of the opposition) hasn’t been able to reach an agreement. Despite his persistence, in our opinion Medina will not be able to impose open primaries. The most he would get is that the law allow political parties to determine if they will organize open or closed primaries, and that the Electoral Board would be designated as the body that should organize and/or supervise them. If Medina does not comply with that, it is likely that the bill on political parties will not pass. That would mean that the regulatory framework remains weak, and that scenario benefits Leonel Fernández.
Therefore, it is likely that Medina will end up compromising to get two measures: a) that the law of parties allows (not obliges) open primaries, which opens the possibility that based on his strength in the Political Committee Medina imposes that method in the PLD; and b) that the organization or supervision of the primaries becomes the responsibility of the Electoral Board, over which he has influence.
As we informed in one of our recent briefs, a year and a half after the investigation into the million-dollar bribes paid by Odebrecht in the Dominican Republic was launched, the Attorney General's Office has filed formal accusations. However, the accusatory file is much more disappointing than most people expected and has been widely described by the public as a mockery. The number of accused was reduced to a half as PLD politicians of the highest profile, members of the powerful Political Committee, were excluded from the indictment. Only two of the seven indicted are PLD figures, and none of them are officials of the Medina Administration.
Going into “damage control mode” and in response to demands from inside and outside the PLD, Reinaldo Pared, Secretary General of the party and currently President of the Senate, has suspended Díaz Rua and Bautista from their posts as Secretary of Organization and Secretary of Finance. Both have been close to Fernandez and are regarded as symbols of corruption in the country. Díaz Rua is a key figure in the Odebrecht case, and Bautista has even been sanctioned by the US Treasury under the Magnistky Law for corruption.
Recently, the PRM has formally appointed its new leadership. Senator José Paliza is the new Party President, and Carolina Mejía is the General Secretary. Several vice-presidents were also appointed and most of them are young people. Most likely this will inject youthful energy into the PRM and contribute to making the party a real alternative to the PLD by 2020.
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