Bernardo Vega, former ambassador to the United States and former Central Bank governor, writes in today’s El Caribe that the Dominican government’s re-acquisition of the electrical distributors would only bring more blackouts, fiscal deficits, foreign debts and expenditures in hard currency, with fewer soft loans from international organizations. He says that the credit extended by the World Bank assumes the distribution of the electricity to be handled by the private sector, and that if this loan falls through, the IMF agreements cannot be fulfilled because the minimum limits of hard currency reserves will not be met.
Vega also identifies the problems associated with the new debt assumed by the DR government with relation to the IMF agreements. The noted economist says that the CDEEE is much less efficient in collecting debts than UF, and, therefore, the cash flows of the distributors will be inferior, making payments to the generators much more difficult. If, in order to avoid blackouts, the government resorts to deficit spending, this would be a third violation of the IMF accords, which stipulate that any breach would be cause for a suspension of payments from the IMF, the Inter-American Development Bank or the World Bank. Only a sharp reduction in the price of oil or a revaluation of the peso could counter these negative consequences.
Of all the countries in Latin America, the DR is the only country to retreat from the privatization process, albeit partially, and take on US$300 million in debt. While UF was certainly indefensible, an alternate solution should have been planned, according to Vega.
The senior economist also agrees with Moreno San Juan in that the new Edes will lack appeal to new investors, especially with the best clients’ remittances ascribed to the debt payment to Union Fenosa. Vega also sees little political hay to be made in the move, predicting that blackouts will negate any political benefits.
Finally, the former ambassador touched on a very sore point: King Juan Carlos of Spain rarely makes public criticisms of other governments, leaving these things to his ministers. In the case of the Dominican Republic, however, the Spanish monarch made an exception and had his say in the presence of the Dominican President. Vega says, ironically, that all that is needed now is to re-open the sugar mills.