Central Bank arithmetic

Have you heard of the term: "cooking the books"? Your very own Dominican Central Bank is preparing quite the sancocho.

The Central Bank website provides the following document:

"INFORME DE LA ECONOMIA DOMINICANA
ENERO-DICIEMBRE 2004
RESUMEN EJECUTIVO"

http://www.bancentral.gov.do/publicaciones_economicas/infeco/resumen_econmia.pdf

Above document uses basic arithmetic to convey salient points of the 2004 DR economy. I wanted to find out the 2004 DR$ nominal GDP (Producto Interno Bruto, PIB).

Claim #1 (page 2): US$1943 per capita income in 2004. Using 30:1 exchange rate, 8.95Million people
--> GDP = DR$525Billion

Claim #2 (page 5): DR$22.39Billion Central Bank deficit is 2.9% of PIB. DR$22.39Billion/0.029
--> GDP = DR$772Billion


Will the Real GDP please stand up? DR$525Billion? DR$772Billion?

calamardoazul, very interesting point you bring up. You are correct in that using 100% of GDP to calculate per capita income may not be totally correct. I was using GDP per capita. It is close to but not exactly the same as per capita income.

Your links show that per capita income uses "total personal income" divided by total populaiton. It is not easy to calculate "total personal income" since it includes earnings, government transfers and investment income. In the USA, earnings make up about 67% of GDP. My guess is that government transfers to individuals and investment income to individuals add another 18% or so. This brings the total to about 85% of GDP in the USA. This would increase my first number:

--> DR$525Billion ==> DR$617Billion. This is still much smaller than DR$772Billion.

We can doble check our numbers : from the links you provide, the US per capita income is US$37,800 (2003). The US population is in 2003 about 290,000,000. Multiplying the 2 numbers gives you about US$10.96 Trillion dollars. The nominal GDP in 2003 was US$11 Trillion dollars. These two numbers show that using the GDP approximation is fairly accurate.

calamardoazul, let me commend you again for making an excellent point.

another assumption

In applying my logic learned in the USA to the DR, I take quite the leap. The assumption that personal income (earnings only) in the DR is also about 67% of DR GDP. I am convinced that it is lower.

I will figure this percentage one of these days.

calamardoazul, The DR Central Bank Documents use GDP per capita, as you mention. The numbers in my first post use GDP per capita, and, as such, are consistent and correct. If my calculation of the first post is incorrect, I would welcome your analysis.

You made a good point differentiating between GDP per capita and per capita income. In countries such as the USA, this difference is small, and the two terms can be substituted for one another without material loss of accuracy.

What intrigued me about your observation is a belief I have held, but not proven. While in the USA the income earned by workers is about 67% of GDP, this percentage is much smaller in the DR, and getting smaller.

What this assertion implies is: rising DR GDP does equate to rising incomes for Dominicans. The proof in that pudding can be found in 2004: GDP increased, but most Dominicans experienced a loss in real purchasing power.

santantwins...you read it correctly..I did leave out the "not".

Lurch, I am keeping a close eye on the the Central Bank DR$ bond auctions...Leonel and the IMF have promised to lower this debt, principally by issuing new types of govt debt intruments: among them Certificates denominated in DR$ but tacking the US T-Bill + the Central Bank controlled exchage rate....we will see how this turns out...I am keeping track.

Central Bank Changes Document

Since I made my original post, the DR Central Bank has changed the document I referenced in the link. Fortunately, I have a copy of the original document. I am happy to see that they made an attempt to fix their "error".


The original Central Bank document:

Claim #2 (page 5): DR$22.39Billion Central Bank deficit is 2.9% of PIB. DR$22.39Billion/0.029
--> GDP = DR$772Billion


The edited Central Bank document:

Claim #2 (page 5): DR$21,658.2Billion Central Bank deficit is 3.0% of PIB. DR$21,658.2Billion /0.03
--> GDP = DR$721Billion

The new numbers narrow the gap, but the gap is still very large. More numbes need to be "fixed".

remittances not necessarily good?

hugoke01 said:

One question : how do they calculate the stream of money brought in by emigrants (USA in USD and Europe in EURO) and is that shown somewhere .

Click to expand...

Remittances and money brought in by visitors does not show up directly in the calcualtion of DR GDP.

However, if you make the assumption that remittances are mainly spent on locally produced goods and services: food, rent, utilitites,beer,etc.... then GDP per capita already includes remittances.

Remittances are a form of money supply. GDP is actual goods and services within the DR, and as such, remittances do not directly add to GDP.

This money accoplishes 2 goals:
1) keeps a lid on the depreciation of the DR$.
2) keeps unemployment higher.

A case can be made that remittances are actually bad for the overall DR economy, as it fosters unemployment and dependency and does not contribute to output.