The Dominican Republic has reached an agreement in principle with the International Monetary Fund (IMF) for a US$1.7-billion loan.

The Washington-based lender said the loan would help the Caribbean nation work towards economic recovery. IMF Managing Director Dominique Strauss-Kahn said the agreement still must be approved by the IMF board.

Dominican authorities have agreed to keep a primary deficit of the combined public sector to 0.8 per cent of GDP this year, reduce it to zero in 2010 and gradually reach a surplus of two per cent of GDP in 2012.

The IMF said yesterday that the government plans a reduction of tax exemptions, improvements in banking supervision and a new strategy for public-debt management.