IMF tells Dominican Government to harden taxes now, ease later

The International Monetary Fund (IMF) recommended that the Dominican Government harden its tax policy to allow easing the monetary policies in 2009.

The IMF said a key element in the fiscal adjustment is the expected improvement of the energy sector’s financial situation, “which reflects not only the reduction in energy prices, but also the active application of penalties for theft and a policy of billing that accurately reflects costs.”

In a statement the multinational financial organism provides the results of the visit from November 12 to 19 by the delegation headed by Andy Wolfe, head of the IMF for the Western Hemisphere Department. He said there was wide reaching agreement on the need to apply a fiscal adjustment in 2009, due to stricter global conditions for credit. “But that hardening of the fiscal policy would create space for certain lightening of the monetary policy.”

The IMF said the fall in international food and energy prices should help reduce the pressure on fiscal and external current accounts. The country also applied a prudent monetary policy in 2008, which contributed to constrict the internal demand and served as anchor to maintain macroeconomic stability, which lead to lower the pressure in the exchange market and an expected lower inflation of 7 percent in 2009.

“Nevertheless, certain margin for the lightening of the monetary policy in the course of 2009 must exist as the fiscal adjustment materializes.”

In that regard it affirms that the authorities will present a budget to Congress based on a realistic projection of income and a credible and identified level of financing.

Regarding the financial sector the IMF said official indicators suggest such a capitalized and protected banking system that it can withstand the present adverse conditions. For that reason, in 2009 a delegation of the IMF and the World Bank will update the financial sector’s analysis program (FSAP), carried out for the last time in 2002.

The delegation visited the country to conduct the first talks on the post monitoring program, with meetings held every six months, after the organism’s Stand by agreement with the country signed last January 30. It said the talks centered on the macroeconomic policies needed to maintain the stability in view of the deceleration of the world economy and restrictive international financial conditions.

The program is an intensive monitoring that’s part of the complements in Article IV of the Consultation’s annual economic monitoring, as soon as the financing exceeds 100 percent of the Member State’s quota.