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The Dominican Republic says it has reached an agreement with international banks for a US$200mn reprieve so it can keep paying the IMF in 2005 and 2006.


Banks such as Banco Bilbao Vizcaya Argentaria, Deustche Bank,

  • ABN Amro, Fortis Bank, Santander Hispano, Lloyds Bank and HSBC took part in the negotiations, according to an announcement the government made on June 16.


    The rescheduling will “contribute to close the financing gap identified with the International Monetary Fund,” says the announcement posted on the government’s website.


    “After settling with the IMF and the Paris Club, [the Dominican Republic] has turned to the commercial lenders and sought relief from payments,” explains Daniel Riordan, executive vice-president and managing director of Zurich Emerging Markets Solutions.


    Loans worth over US$2mn per bank and due in 2005 and 2006 are included in the agreement, provided they are not supported by export credit guarantees. The agreement calls for a two-year grace period for principal payments, with the first disbursement to be made only in July 2007.

    “This accord is part of the strategy? aimed at normalising the Dominican Republic’s relations with the international banking community,” the document states. In January, the government signed a 28-month, US$665mn programme with the IMF.


    Zurich Emerging Markets Solutions expects to pay claims as a result of delays stemming from the rescheduling, says Riordan.


    “If the rescheduling takes longer than anticipated, we are ready to provide prompt payment of claims in the event that the policies are triggered,” says Riordan. Zurich provided coverage to banks and a few exporters in the Dominican Republic, he comments. They also covered loans aimed at projects, 50% each to private and public sectors.


    Zurich supports mostly infrastructure projects in the Dominican Republic, with water treatment and health-related projects – all backed by commercial loans – making up two of the main sectors. Furthermore, the company has also supported tourism-related businesses whose loans are not backed by sovereign guarantees and therefore have not been banded in the rescheduling.


    “We are seeking to provide our customers, who are banks in particular, with the ability to reschedule their payments over time and that often means extending out the terms of the policies that we may have,” says Riordan. “I wouldn ‘t expect most new business opportunities to really take place until 2006.”


    Last May the government restructured two sovereign bonds with a face value of US$1.1bn.

    The Dominican Republic, which has a US$19bn economy, is rated B3 by Moody’s the same as Lebanon and Bolivia and six levels below investment grade. Its GDP grew by 4.3% year on year in the first quarter of this year

    The president, Leonel Fernndez, took office in August 2004, a year after the economy tumbled 0.4% mostly due to the controversial bail-out of three banks that collapsed that year.


    The bail out cost more than a fifth of the Dominican Republic’sGDP, according to Amelia Santos-Paulino, an advisor on trade policy to the Dominican Republic’s government and central bank in 2004. Baninter, the country’s second largest bank at the time, accounted for nearly two thirds of that figure.


    “For a small economy such as the Dominican Republic’s, that was the main cause that led to the economic crisis,” explains Santos-Paulino, presently a research fellow at the United Nations University in Helsinki.


    “This year, the economy was hard hit when global quotas for textile imports ended on January 1, 2005, leading to a surge in Chinese textile exports,” Santo-Paulino explains.


    The economy is mainly pinned on garment exports, she notes, and has had two current account surpluses in as many years.


    “Production costs in China are smaller than those in the Dominican Republic and productivity there is higher,” Santos-Paulino comments. Exports fetched US$5.7bn last year, with more than 80% bound to the US.