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Submitted by Miguel Eduardo Sanchez on Fri., 08/08/2014, Co-Authors: Aleksandra Iwulska, Javier Eduardo Báez and Alan Fuchs

Washington.- In April this year the Dominican Republic borrowed 1.25 billion US dollars on international markets in 30-year bonds. The DR is the only country in the B investment rating group that successfully issued 30-year bonds in the last 6 years. The country has a total of 2.75 billion US dollars for three issuances in the past 15 months.

At the same time, debt levels have been growing in the country: non-financial sector public (NFPS) debt doubled from 18.3 percent of GDP in 2007 to 36.6 in the first quarter of 2014.When considering the DR Central Bank debt stock, levels would be already close to 47 percent of GDP. It is worth noticing that Jiménez and Ovalle (2011) estimated in 56.7% the debt to GDP the maximum debt to GDP threshold that investors would consider sustainable for the DR in 2013.  Meanwhile, interest payments reached a peak of 2.4 percent of GDP in 2012-13 and external debt stood at 25 percent of GDP in 2013, levels not seen since the economic crisis of 2003. But the economic realities in the DR now are much different than they were in 2003. GDP grew by 4.1 percent last year and 5.5 percent in the first quarter of 2014. The Central Bank forecasts the annual economic growth at 4.5 percent this year. Meanwhile, central government fiscal deficit dwindled from 6.6 percent of GDP in 2012 to 2.9 percent in 2013.

A country with one of the highest economic growth rates in the region in the last decade, the Dominican Republic faces one important challenge: to balance a higher level of indebtedness with its high poverty rates (40 percent) and its weak equity conditions. In addition to limited poverty reduction, people have had little opportunity to escalate socially and economically to reach the middle class, with just under 2 percent of the population in the DR experiencing upward socioeconomic mobility, in contrast to 41 percent in the LAC Region. Whereas the country has succeeded in recent years in providing greater access to a spectrum of basic services, there is still high persistence of people that are not only poor in monetary sense but also deprived of the basic goods and services to enjoy fully productive lives.

Debt, growth and equity

Source: General Public Credit Directorate of the Dominican Republic and the World Bank.

* For Q1 2014 data reflects actual debt incurred in the first quarter of 2014 to projected GDP for 2014. 

Undoubtedly, high levels of debt can slow down growth (Reinhardt and Rogoff, 2010) and transfer the financial burden to future generations. In countries with limited revenue generation capacity, growing interest and principal payments may squeeze government’s budget and crowd out other expenditures much needed by the poor. At the same time, countries with limited resources may borrow now to invest in physical and human capital (by investing in roads, schools, health centers, etc.), in a context of institutional and governance strengthening, expecting to improve equity conditions and the foundations for robust, sustainable and inclusive growth in the future.

In sum, it is difficult to predict the net effects of the current increase in debt in DR on poverty and inequality. At the same time, it is worth ensuring that debt levels are on a sustainable trend, since high debt levels could hamper growth, increase macroeconomic volatility and, ultimately, provoke a fiscal crisis, which in turn would negatively affect the poor.

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COMMENTS
18 comment(s)
Written by: ohhhvictor, 15 Aug 2014 1:34 PM
From: United States
very interesting article ..
Written by: chillinout, 15 Aug 2014 3:13 PM
From: Dominican Republic
Eighty percent of the GDP is from household consumption. The poorest half of the population receives less than one-fifth of GDP, while the richest 10% enjoys nearly 40% of GDP. There is the wealth gap.

The standard of living would improve if the gov't didn't impose Duty to 35%, Luxury tax to 80%, Exchange surcharge of 13% and Vat of 18%on most imported goods. I don't care if it is a car, TV, computer, battery charger, LED flood lights.or cement. These things all cost double or even more of what they do in America. The VAT alone is punitive.

The U.S. average hourly wage is US$42,000 a year here it is US$7,000 a year. A civil engineer with 4 yr degree told me he makes $7,500 a year here. In any country that should be a solid middle class job. A bank teller $2,700 a year and she also attended college.

The only thing cheap in this country is labor. It is like a serfdom for business and the wealthy.

Written by: chillinout, 15 Aug 2014 4:09 PM
From: Dominican Republic
" with its high poverty rates (40 percent) and its weak equity conditions. In addition to limited poverty reduction, people have had little opportunity to escalate socially and economically to reach the middle class, with just under 2 percent of the population in the DR experiencing upward socioeconomic mobility, in contrast to 41 percent in the LAC Region. Whereas the country has succeeded in recent years in providing greater access to a spectrum of basic services, there is still high persistence of people that are not only poor in monetary sense but also deprived of the basic goods and services to enjoy fully productive lives"

GDP had 5.5% ave yrly growth for 10 yrs but only 2% of population has moved up economically.

I have been coming here for 7 years and totally agree.

Government has failed and is failing the majority of society while at the same time is catering to the ruling class and wealthy.

Perfect serfdom. Time for new tax policies and labor laws.
Written by: VeronicaDR, 15 Aug 2014 6:18 PM
From: United States
All of this information leads to the same thing I keep saying. Our government is too corrupt and until this problem is solved we will never move forward on anything.
Written by: GringoRandy, 15 Aug 2014 8:06 PM
From: Dominican Republic, Santiago
@ chillinout ... don't stop, man, you are on a roll ... while I have been a lukewarm supporter of the Danilo administration, the results continue to be much as the same 'ole ... and plunging further into debt to benefit a few while the majority squalor is disgusting.

@ VeronicaDR ... nothing new here ... it is up to the people to demand change!
Written by: josean, 15 Aug 2014 9:24 PM
From: United States, Fighting the Dictatorship of the Narco PLD Mafia; Guillermo Moreno President 2016

"A country with one of the highest economic growth rates in the region in the last decade, the Dominican Republic faces one important challenge: to balance a higher level of indebtedness with its high poverty rates (40 percent) and its weak equity conditions. In addition to limited poverty reduction, people have had little opportunity to escalate socially and economically to reach the middle class, with just under 2 percent of the population in the DR experiencing upward socioeconomic mobility, in contrast to 41 percent in the LAC Region. Whereas the country has succeeded in recent years in providing greater access to a spectrum of basic services, there is still high persistence of people that are not only poor in monetary sense but also deprived of the basic goods and services to enjoy fully productive lives."

Continued:


Written by: josean, 15 Aug 2014 9:31 PM
From: United States, Fighting the Dictatorship of the Narco PLD Mafia; Guillermo Moreno President 2016


.....and there you have it Signed, sealed and Delivered by the World Bank!

........since 1996 all the PLD has done is create never before seen levels of Debt which has allowed the PLD's Political Committee, under the leadership of NARCO Lie-onel, to Steal at historically unprecedented levels......while doing NOTHING for the MAJORITY of the Dominican Taxpayers!



Written by: Ricardolito, 16 Aug 2014 12:13 AM
From: Dominican Republic, Zona Colonial
I really do not like articules that can not come to a conclusión . I can . The debut levels are problem areas if the borrowed money is not productively used. If it is used productively,then there is little problem and of course the oversubscribing to our loans issues proves that investorsthink we are ok. The división between poor and rich in a developing country is regretably very normal. Take China and India and Brazil for example. And of course,the división in the USA is appalling . In non socialistic countries that is the norm. And no country can be much less socialistic than the DR where the rich do not care twopence for the less fortunate
Written by: Perception, 16 Aug 2014 12:32 AM
From: United States
Will more debt "H I N D E R" the development of the Dominican Republic?




)))))))) Y E S (((((((((((



1. Get in way of: to delay or prevent the development or progress of somebody or something.
2. Interference with (BALL): in squash and handball, an opponent's accidental interference, preventing fair and unobstructed return of the ball.

"Veni, Vidi, Vici"...




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Written by: josean, 16 Aug 2014 5:55 AM
From: United States, Fighting the Dictatorship of the Narco PLD Mafia; Guillermo Moreno President 2016


"The 'debut' levels are problem areas if the borrowed money is not productively used."


.......exactly like the USELESS METRO the most costly Public Works Project in the HISTORY of the Republic with the least Productivity for the Overwhelming Majority of the Dominican People!


Written by: dreadlocks, 16 Aug 2014 2:34 PM
From: United States
says Ricardolito

And no country can be much less socialistic than the DR where the rich do not care twopence for the less fortunate

make that a penny farthing..
Written by: Ricardolito, 16 Aug 2014 9:06 PM
From: Dominican Republic, Zona Colonial
Ok just a little more than absolutely nothing . I Was reading this blog on the world bank website ,and that is all it is,and actually the blogger a stated that if we borrow more, the rep aumentos will be more for futuro generations. This is not rockero science and is totally obvious and not undesirable. The deveopment of the DR has been very recent and I imagine it will take two or three generations to have potable water, proper sewerage and a up to date computer system to dísclose all the tax evasions. There also has to be universities of a higher standard and many other things that our generation and those in the future will need to fund. This is the only way to advance




Written by: josean, 16 Aug 2014 9:52 PM
From: United States, Fighting the Dictatorship of the Narco PLD Mafia; Guillermo Moreno President 2016

The PLD apologist says:

"The deveopment of the DR has been very recent"

Then he goes on to say:

"I imagine it will take two or three generations to have potable water, proper sewerage and a up to date computer system to dísclose all the tax evasions. There also has to be universities of a higher standard and many other things that our generation and those in the future will need to fund."


So what God damn development are you talking about!


Written by: Ricardolito, 16 Aug 2014 10:48 PM
From: Dominican Republic, Zona Colonial
I am sorry that I may have not been clear .but less than 30 years ago ,there were very few highways in the DR and the zona francas were primitive The actual policy of accelerated deveopment by borrowing is within our generation and our generation started with few debts but the former policy and that of many subscribers here is not to do anything until you have your own money, with that policy progress is slow and so the Government and indeed the population endorsed a policy of borrowing to pay for Roads,Schools and in the case of people bikes,cars,and refrigerators.. Entonces, our debt is recently modern. We still have dams and roads and ports to build we still have universities to improve and technical Schools also and we desperately Need a modern computer system and of course we always have a Government budget in deficit that needs funding..yes, I agree that the country needs greater efficiency and less corruption but even then we will need funds which we and our children pay
Written by: Ricardolito, 16 Aug 2014 10:51 PM
From: Dominican Republic, Zona Colonial
I am not an apologist for any one on any subject. I am quite able to form an opinión on seperate issues and on this issue of funding over the past decade, I personally think our Reserve Bank has done a very good job
Written by: ohhhvictor, 17 Aug 2014 2:23 AM
From: United States



JoseAnus..Instead of saying nonsense, say "perejil"
Written by: josean, 17 Aug 2014 7:38 AM
From: United States, Fighting the Dictatorship of the Narco PLD Mafia; Guillermo Moreno President 2016



I got Ms. Vickey going crazy staying up til 2 in the morning posting repetitive nonsense!


Written by: josean, 17 Aug 2014 7:56 AM
From: United States, Fighting the Dictatorship of the Narco PLD Mafia; Guillermo Moreno President 2016


PURPLE Development:


Potable water 24/7......... rarely!

Hospitals well equiped and stocked with medicines for the majority........almost nonexistant!

Formal well paid jobs......can't find even with a microscope!

Safety from robberies and crime.....a joke!

Reliable inexpensive electrical services........ a bigger joke!


Development is about a lot more than Super Ugly elevated highways and USELESS Relection Gimmick Finacial Albatross METROS!


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