El Caribe’s headline on 26 December read: “The Executive Branch continues its festival of borrowing abroad,” while announcing the new loan contracts the government sent to Congress for approval. Now the government wants to borrow US$131.7 million to build the Pinalito Dam in La Vega. These funds would be borrowed from the Banco Nacional de Desarrollo de Brazil and ABN Amro Bank of Holland. In a letter to stimulate Congress to take on the loans from the commercial bank, President Mejia says the works could start as early as the first quarter of 2004 and should be ready in 36 months. He mentions that the project would also generate 1,200 jobs for residents in the area and would lead to investment of US$40 million in developmental projects in the region. The loans would be for 11-year terms, with a two-year grace period.
The government-intervened Listin Diario presents the bill as the Mejia administration’s solution to the serious power problems of the country. In the addendum of the bill sent to the Senate, President Mejia explains that the construction of the hydroelectric Pinalito Dam would signify savings of 335,605 barrels of petroleum, or US$10 million a year, which means the principal portion of the loan would be paid in less than 13 years. Mejia states: “The Executive Branch trusts that Congress will support and pass these bills and believes this will be a first big step to solve the serious energy problem with which we live.”
Fausto Adames, in an overview on Dominican debt, published in the 21 December edition of Hoy newspaper’s economic section, says that this year alone, the National Budget Office indicated that payments on the debt have multiplied 136.45% from January to October compared to least year, going from RD$6 billion to RD$14 billion. In 2004, Dominicans will have to pay RD$39 billion for the foreign debt. That is, debt service will increase 281% from last year to this year, shooting up from RD$10 billion in 2002 to RD$40 billion in 2004.
This figure is about 38% of the total budget proposed for 2004, estimated at RD$121 billion. Adames reports that the global foreign debt has increased by 50% in the past four years, going from US$3.684 billion in 2000 to US$5.5 billion at the end of this year, according to IMF projections. The worst part of it all is that prior to 2000, most of the debt was with multilateral organizations and foreign governments, while the new debt was taken on with foreign commercial banks. While last year foreign debt accounted for 20.3% of the GDP, it now represents 34%.
The former director of planning under the Fernandez government, Rafael Camilo, estimates that the government will have to use 70% of the national budget to pay public debt, debt to government suppliers and contractors and domestic borrowing. He said this deficit the government will seek to cover with increased taxes, under the guise of tax reform. He also pointed out that these estimates are in addition to RD$98 billion in money printed without the backing of reserves, according to the Central Bank, to confront the collapse of three commercial banks and capital flight of US$3.5 billion. Camilo stated in the interview that during the Baninter crisis, the government gave priority to the interests of bank executives who received RD$40 billion prior to the authorities’ intervention of the bank, at a pace of RD$2 billion to RD$3 billion a day, as recognized by Central Bank Governor Jose Lois Malkum. The bank’s security trucks spent several days transporting funds from the Central Bank to Baninter branches, said Malkum. This money was later converted to domestic debt that the Dominican people are being asked to pay for with new taxes, in addition to the rampant inflation. Camilo says the Mejia government has abused the practice of borrowing from abroad, as it increased the foreign debt 50%.