Indebtedness is a valid and positive development mechanism. The over-indebtedness, a problem. In effect, debt service, amortization and interest payments are covered by tax revenues. Then, the higher the level of debt, the higher its service and higher budget resource requirements. To cover the service of the debt with indebtedness, an apostasy.
Go into debt to cover current expenses, nonsense. However, our countries have lived and coexisted, on various occasions, with some of these deadly sins.
In fact, in the 1980s, considered the “lost decade” in terms of development, our countries, indebted ad nauseam with cheap petrodollars, quadrupled their debt levels by more than US$315 billion and saw their economies collapse ( inflation, devaluation, unemployment) in the face of non-compliance with international commitments, which became known as the Latin American debt crisis, when the debt service quintupled in less than a decade, going from some US$12 billion to more than $66 billion in 1982.
The Dominican Republic was somewhat removed from this financial voracity, due to the austere style of governing of Dr. Joaquín Balaguer, however, as of 2001, the composition of its debt began to change, fundamentally concessional and bilateral (World Bank, IDB, IMF), with the issuance of the first sovereign bonds for US$500 million.
From that time to this part, our external debt is practically commercial, some US$36,000 million in sovereign bonds. The administration of President Leonel Fernández 2004-2012 faced the banking crisis of 2004, the financial crisis of 2008 and a disproportionate increase in commodities, with crude oil reaching US$148 a barrel, and in a mixture of commercial and concessional credit, It brought the external debt to some US$19.999 billion by August 2012, 42% of the GDP, maintaining an average growth of the economy of 5%, with inflation below double digits.
During the administration of President Danilo Medina, the consolidated public debt increased by 23.8%, rising to 52% of GDP to reach US$45 billion by 2019. A stock of debt doubled in an unbeatable international environment where the price of crude oil (WTI), the sword of Damocles of our economy, averaged US$64.18/barrel.
During that period of fat cows, our economy increased its “leverage” to finance its current expenses and presidential projects with debt. And then came the pandemic in 2020, where the government was forced to borrow even more with a first financial package of RD$32,000 million financed with loans of RD$12,000 from the Central Bank, RD$12,000 from the Dominican Institute for the Prevention of Occupational Risks and US$150 million from the World Bank for social spending, while revenues plummeted.
In summary, Danilo Medina delivers to President Abinader in August 2020 an economy with relatively little room for maneuver, having a debt/GDP ratio of around 65.9% (US$51.9 billion).
The new administration, during these first two years of management, raises the stock by an additional US$13,000 million to meet pending commitments and finance social and health plans up to US$64,471 million. However, proper liability management and robust economic growth in 2021 have managed to place the debt-to-product ratio as of March 2022 at around 60.2%.
However, these favorable conditions will not be repeated. Indeed, with the high levels of inflation in both the US (8.5%) and the DR (9.46%), their Central Banks have been compelled to restrict the monetary mass put into circulation as a result of the pandemic, as well as to increase the cost of money by raising their monetary policy rates. Consequently, the renewals -rollovers- of overdue financing will be more expensive every day. Both the financing in dollars and the one issued internally by the Treasury.
Although it is clear that we cannot bleed our economy and we must maintain a positive net flow of external resources, we must be extremely cautious, disdaining cheerful indebtedness and focusing on strengthening foreign direct investment, the promotion of our exports and the expansion of the tourist market. And only appeal to public debt in projects of high profitability and repayment that are of indisputable government responsibility.
It must be remembered that financial commitments are paid with taxes from taxpayers. In the 2021 budget, RD$184 billion was contemplated for interest payments (3.8% GDP). For the 2022 budget we have consigned interest payments of about RD$193 billion (3.3% GDP). Where are we going to get them from if by the middle of the year we have already exceeded by 30% the amount allocated to last year’s fuel subsidy (RD$20,588 million), while interest rates are just beginning their anti-inflationary rise? It is always good to remember that there is no free lunch. Family/