In his Argentarium column in Diario Libre on Thursday, 24 December 2015, economist Alejandro Fernandez commented on the distortions between who is benefitting from credit in the Dominican Republic. He pointed out that according to the Central Bank, as of December 2015 the bulk of credit is going to consumers, not to production. He warned that Dominican households are increasingly taking on credit.
He says that according to official data, Dominican families have taken on more than RD$50 billion in credit. Of the total RD$17 billion, or a third, was for mortgage payments. Another RD$9 billion went towards financing motor vehicles, including RD$7 billion for new vehicles and US$2 billion for used vehicles.
The remaining US$25 billion was spent on household furnishings and appliances, credit for taking vacations, supermarket purchases and even electricity bills financed with credit card borrowing.
He says that a lot of the Dominican boom, so apparent with all the shopping is due to Dominicans borrowing on their credit cards. He said what is new in the dynamic Dominican economy is the “bubble of personal credit on which we are floating.”
“The pace at which consumer credit is growing in the Dominican Republic should be studied by the authorities, the banks that encourage and promote it and especially by the households, which are the ones who will pay the bills,” he writes.
He says that Central Bank statistics show unprecedented levels of credit card credit growth over the past 12 months. There was a record RD$7.9 billion, with much of the financing at a 60% annual interest rate. He said this contrasts with the fundamental productive sectors only receiving 5% of the new credit channeled to consumption. “That is, we are financing spending (imports, by the way) of employees, but not the creators of new jobs,” he concludes.