Dominican Republic follows Puerto Rico and Venezuela on the road to fiscal unsustainability

El Nuevo HeraldBy Antonio María Delgado

[Translated by IASW]

The Dominican Republic seems to have adopted the same recipe that has led other countries to economic disaster, incurring loans at excessively high rates to finance unbridled public spending.

Experts consulted warn that the debt burden has reached alarming levels for the Caribbean nation, whose government on the other hand refuses to exercise greater controls over spending, a disastrous combination that increases the risk of default.

“Interest payments are already almost a quarter of the State’s budget,” said Ernesto Selman, executive director of the Regional Center for Economic Research for Sustainability (CREES).

“If there is no trend change in the medium term, the Dominican Republic would be running the risk of re-entering a default situation. It is not an imminent situation, and there is an opportunity to change that trend, but if in the next few years it does not change, that is what is going to happen, “he added.

CREES is part of a growing chorus of voices that have been warning that the Dominican Republic wanders along the same road of fiscal irresponsibility that have led Puerto Rico, Venezuela and Brazil to economic hardship.

“These policies are ultimately unsustainable,” Selman insists. “And we say that because the Dominican Republic has assumed fiscal deficits, year after year, with the exception of one year, from the year 2000 to date.”

And those fiscal deficits have been financed with debt.

Figures from the International Monetary Fund placed Dominican public debt at the equivalent of 48.5 percent of gross domestic product in 2015, and by 2016 it was estimated to reach 49.5 percent.

Much of the problem is the high interest rates that the country pays for these loans, said Miguel Ceara, research professor at the Pontificia Universidad Católica Madre y Maestra, a Dominican private study center.

The average interest rate is above 8 percent, and that forces the government to allocate an enormous amount of resources to pay interests.

The sum of interest paid by the central government and the central bank amount to 4.08 percent of GDP, Ceara wrote recently in a report. “That is more than what is allocated to the Ministry of Education,” he said.

Ceara said in a telephone interview that the consolidated debt, the sum of the cost of central government debt and that of the Central Bank, has led to 29 of every 100 pesos collected for taxes to be dedicated to the payment of interest.

But, as has happened in countries like Venezuela, much of the funds obtained through this debt have gone to questionable ends.

“With that debt, the Odebrecht fraud was paid, the overvaluation of works in those projects and the overvaluation of the Tucano aircraft, plus the illegal commission paid.”

According to research by The Wall Street Journal, Brazilian aeronautical company Embraer paid bribes to Dominican politicians and the military to approve a $92 million contract for the purchase of Super Tucano aircraft.

In the same way, the Dominican Republic is immersed in the corruption scandal related to Brazilian construction firm Odebrecht.

“There are items [of expenses] that are incomprehensible,” Ceara said. “There is a big problem of overvaluation of works. Works that are budgeted in 100, and appear executed not in 150 but in 300 or 400. They are multiplied by three or four. ”

But part of the Dominican Republic’s economic problems lie in the high subsidies it pays in the power sector, operated by state-owned utilities, said Selman.

“That’s a similarity to the situation in Puerto Rico, where part of the economic problems also stem from electric power and the cost of electric service,” Selman explained.

“The issue is that the distributors are from the state and are very inefficient; Lose a third of the electricity they buy, and on top of that they stop charging 3 percent of what they bill, “he added.

Click here for original article in Spanish.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Subscribe to our newsletter!

Latest Tweets by @IASecurity

Videos Featuring Our Experts

Promo for CNN's AC360°: "Passports in the shadows", feat. Roger Noriega Ambassador Roger Noriega on PBS NewsHour discussing U.S.-Mexico relations under Trump José Cárdenas Interview with Opinion Journal: "Hungry in Venezuela" Ambassador Noriega Analyzes President Obama’s visit to Cuba on PBS’ ‘Newshour’

Ambassador Roger Noriega discusses the implications and impact of the president’s visit to Cuba on PBS News Hour

Felipe Trigos habló sobre la visita del presidente Obama a Cuba

Testimony by Ambassador Roger Noriega before House Foreign Affairs Committee Hearing on Latin America in 2015: A Year in Review

Jose Cardenas discusses Cuba's problematic ties abroad at the Center for Security Policy’s 4th Annual Latin America Symposium

About

During the last several decades, the United States has invested billions of dollars in trying to help the governments of Latin America and the Caribbean deliver better lives for their citizens. This has meant helping them increase internal security by combating the illicit growing and trafficking in narcotics and the activities of terrorist groups, as well as helping them to shore up their democratic and free market institutions.

Unfortunately, in recent years, continued progress in these areas has been threatened, not least by the elections of radical populist governments in Venezuela, Bolivia, and Ecuador. These governments have instituted retrograde agendas that include the propagation of class warfare, state domination of the economy, assaults on private property, anti-Americanism, support for such international pariahs as Iran, and lackluster support for regional counter-terrorism and counter-narcotics initiatives.

We are a group of concerned policy experts that fear the results of these destructive agendas for individual freedom, prosperity, and the well-being of the peoples of the region. Our goal is to inform American policymakers and American and international public opinion of the dangers of these radical populist regimes to inter-American security.