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IMF Arrangement

THE OECD IMPROVES THE DOMINICAN REPUBLIC’S COUNTRY RISK CLASSIFICATION

The Organization for Economic Cooperation and Development (OECD) improves the country risk classification for the Dominican Republic, from 5 to 4, on a scale ranging from 0 to 7, with 0 being the best rating, thus reducing premiums and fees to be paid for new loan contracts with export credit agencies (ECA's).

In 1997, The Participants to the Arrangement on Officially Supported Export established a methodology for assessing country credit risk and classifying countries, for establishing the minimum rates and premium fees for official export credits.

The country risk classifications should to reflect transfer and convertibility risk (i.e. the risk a government imposes capital or exchange controls that prevent an entity from converting local currency into foreign currency and/or transferring funds to creditors located outside the country) and cases of force majeure (e.g. war, expropriation, revolution, civil disturbance, floods, earthquakes).

According to the established evaluation process, the countries (and a limited number of supranational multilateral/regional financial institutions) are classified into one of eight categories (0-7) through the application of a two-step methodology:

• A quantitative model constructed specifically for this purpose: The Country Risk Assessment Model (CRAM) produces a quantitative assessment of country credit risk based on three groups of risk indicators (the payment experience reported by the Participants, the financial situation and the economic situation based primarily on IMF indicators).

• A qualitative assessment of the CRAM results by country risk experts from OECD Members in order to integrate factors not fully taken into account by the model. This could lead to an adjustment (upwards or downwards) of a country compared to the CRAM results. Any adjustment has to attract a consensus among Experts.

The group of country risk experts meet several times a year. These meetings are organized to guarantee that every country is reviewed whenever a fundamental change is observed and at least once a year.

This improvement in the OECD classification recognizes the good record of the Dominican Republic in recent years, the robust and sustained economic growth, the strengthening of the financial system, payment history on time, fiscal consolidation and sound debt management, the significant improvement in external accounts and therefore reduction of external vulnerabilities, among others.