Five economists met for the Grupo de Comunicaciones Corripio luncheon on Wednesday, 10 May 2017, and acknowledged the impressive growth of the Dominican economy. However, they observed the growth of the economy is based on an unsustainable amount of debt being taken on by the Medina administration. The economists Ernesto Selman, Jacqueline Mora, Pedro Silverio Alvarez, Jose Luis de Ramón and Miguel Ceara Hatton made the remarks.
Economist Jacqueline Mora said that while the economy grew 5.2% in the first half of the year, most of the country’s economic activities grew very little. She said the fiscal deficit is at 4% of the GDP, and the foreign debt is at 50% of the GDP. She criticized that the Central Bank is using its financial certificates to conduct de facto monetary policy, creating more debt and distorting the interest rates on the market. She said the Central Bank began to issue certificates to cover the banking deficit of 2003, and now is using these certificates to take money out of the economy and that is why the quasi-fiscal deficit has ballooned to the current level of US$11 billion.
Economist Pedro Silverio observed that the projection is that the public debt will be at 53% of GDP before 2020. “This highlights the unsustainability of the debt in the first quarter of the year with interest rates of almost 10% above the economic growth,” said Silverio, as quoted in El Dia.
Miguel Ceara Hatton observed that as of March 2017, the public debt had increased to US$10.2 billion, or about US$203-US$204 million a month. The average interest rate is 8 to 9%, that is 4.2-4.3 of the GDP. Ceara said the problem with the debt is that every time we have to use money that could be used to stimulate development and generate revenue to cover current government expenditures.
The government is directing 21-22% of its revenues to pay interest on public debt, said economist Jose Luis de Ramon, director of Deloitte Dominican Republic. “The economy has taken on this high amount of debt to keep up all the country’s economic growth, but we are reaching a level of debt that is not sustainable.”
He said the economy of the country has expanded, but it has been at the cost of public indebtedness that is fused to finance consumption.
Ernesto Selman of the Regional Center for Sustainable Economic Strategies (Crees) says that public spending has more than doubled over the past 20 years. Meanwhile, exports have been dropping since 2010 and savings of workers in pension plans have been used to purchase debt titles.
The economists concurred that to resolve the fiscal deficit problem the government will need to reduce spending or continue increasing taxes through a fiscal pact. But Pedro Silverio Alvarez, vice academic rector at the PUCMM university, observed that the government will have difficulty negotiating the pact unless its shows a clear intent conduct its finances in transparent fashion, with proper rules for ethics in place and an unwavering commitment to penalize corruption. Silverio said that the legitimacy of the government has been compromised by the Odebrecht bribes scandal. He observed the government needs to demonstrate its commitment to put in place new rules of ethics and be willing to penalize corruption,” he said.
Ceara Hatton said it will be difficult to place one more cent in the hands of the government in the present conditions.
Answering to the economists, Yván Rodríguez, deputy vice minister of the Ministry of Economy, defended the present public debt levels. He said at their present level the debt does not run the risk of being unsustainable because the economy has a good level of generation of hard currency through tourism, remittances and direct foreign investment, growing exports, a banking system with an 18% solvency, and a robust growth of the GDP.
Read more in Spanish:
El Dia
Listin Diario
El Nacional
12 May 2017
