Minister of Finances Fernando Alvarez Bogaert denied yesterday a report in the Listin Diario (see http://www.dr1.com/daily/news031501.shtml) that stated that the government had a RD$1,500 million fiscal deficit in January and that a loan from the Banco de Reservas was used to finance the deficit. The newspaper attributed the fiscal deficit to government overspending on new personnel. Minister of Finance Alvarez said that the deficit was due to foreign debt payments falling due in January. He said the government took out a US$130 million loan from private banks to meet these commitments inherited from the past administration. He said the loan will be paid with income produced by the Petroleum Law, as reported in El Siglo. Alvarez said that the DR has one of the lowest indebtedness rates in Latin America, about 19.6% of its Gross Domestic Product, or US$3,600 million. He said the country is paying an abnormally high US$700 million a year on the debt. He said the debt has been dropping, and consequently at the same time the reserves of the Central Bank. Monetary measures in place to maintain macroeconomic stability have resulted in a steep hike of interest rates that primarily affects local business. He said that real interest rates in the US are at 2.5%, in Central America at 5-6%, but in the DR at 18%. Alvarez says that no economy can develop at the present high interest rates. He said this led his department to decide to issue sovereign bonds for the first time in DR economic history this year. Several leading US brokerage firms have shown an interest in underwriting the bonds. The idea is to be able to inject new capital into the economy so as to force a drop in the interest rates without further depressing the economy. Alvarez said that this government is committed to continue the sound macroeconomic policy framework that has characterized the Dominican economy for almost 10 years now. "The central government is handling itself like a small grocery shop ("pulpería")," he said. "The state is strictly spending only the money that comes in," he said.
