un "paquetazo"

mondongo

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Jan 1, 2002
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This is sadly step 2 in the current DR administration's quest to choke and arrest the Dominican economy. Today the DR1 news reports that the Mejia administration is sending a major tax increase bill to the congress. The Mejia mafia claims that they need the revenue to make up for a short fall due to the worldwide economic slowdown. They also need more to service the growing debt: here is the sequence of events:

1. borrow more than you can pay
2. raise taxes during an economic downturn
3. revenues go down even more
4. currency accelerates downward spiral
5. print more money
6. inflation goes through the roof.
7. capital leaves country
8. mobs rule

I posted this 6 months or so ago, during the Argentina debacle. What can be done to stop this runaway train?

mondongo
 

mondongo

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Jan 1, 2002
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Eximbank loan

DR1 news reported today another US$1billion loan from Eximbank USA. Eximbank USA is a government agency whose goal is to promote exporting US goods and services. When it makes a loan or loan guarantee to the DR there are many stipulations and restrictions placed on the loan. More than 50% of the loan must be spent directly on US goods and services. The other 50% is probably stolen by the politicians. So guess who gets stuck with the bill?

I have counted US$3 billion in 2 years for Mejia. I dont know what the total DR debt is, but if this continues, i'm sure it will approach US$10billion in a couple years. This would place the debt service to GDP ratio very high....and almost twice that of the US.

If the borrowing stopped right now, the DR would not be any worse off than many other countries....but just the opposite...i think that these gusy just can't believe how easy is has been to gorge themselves with money.....they wont stop

Edited to add: note how the exchange rate vis-a-vis the US$ has stopped falling recently. this is a mirage of sorts because it has come at the expense of a depreciation of the EU$. Once the EU$ stops strenghthening against the US$, you might see a resumption of the DR$/US$ slide.
 
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mondongo

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Jan 1, 2002
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DR1 News today shows that Mejia has borrowed about US$4Billion in two years. At current taxes, thats probably a little more than the TOTAL federal budget. In the USA, the Federal budget is about US$1.6 triillion, the total US debt is about US$6.5trillion.

The DR now has about half the debt/GDP ration as the USA. The major exception is that the interest rate that the DR pays out is at least twice that of the USA. Effectively, the DR has a bigger debt load than the USA. Mejia continues to borrow, so this will only get worse.

Mejia is already telling the public that sacrifices will have to be made in the near future. We are now between steps 3 and 4.


edited to correct numbers
 
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mondongo

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Jan 1, 2002
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RIOTS in the streets of Uruguay. Due to precipitous fall in the Uruguay US$ reserves, and due to the collapse of the Uruguay Peso....the Uruguay goverment has "temporarily" shut down bank withdrawals...Scenes reminiscent of Argentina...looting of supermarkets...inability to withdraw US$ denominated accounts...

The Brazilian currency is hitting all time lows.

The Uruguay economy is about the same size as the DR's. They had about US$10billion in debt. My estimates of DR present value national debt is around US$7billion or more.

We're not red-lining this little engine, yet....but I'm certainly putting on my seatbelt.

BTW, Frederic, where have you gone?