What precautions should we take?
The U.S. and European economies are slowing sharply as recession risks grow.
News like this is coming out daily. Hyperinflation, recession, collapsing stock markets, dollar devaluation, food shortages, transportation bottlenecks, and more rate adjustments.
But what is the truth in these predictions?
They are all based on two factors: the resurgence of COVID-19, especially in China, and the Russia-Ukraine war that seems to have no end in sight, both creating a perfect storm.
If the war were to end in a few months all these predictions collapse, even if COVID continues to cause setbacks. But if the war drags on indefinitely, some of those predictions may inevitably occur in the short term.
For example, the Fed in its last rate hike said it will make as many rate adjustments as necessary to bring inflation down. However, I think Americans will have to live in the future with inflation between 3.5%-4% and forget about the 1.5%-2% that prevailed for years.
What about the economy? The FED made it clear that a global recession is highly probable.
And recession is synonymous with unemployment, poverty, and more deficits and debts because if the war intensifies and there are more cuts in commodity supplies, monetary policy efforts to control inflation will be neutralized, and from there, the cataclysm is only a step away.
Is there any awareness of all this?
Precisely, that is the biggest problem. Many believe that all these predictions are just alarms that will be blown away by the wind, while consumerism continues to grow and put pressure on prices.
For my part, I do not believe that so many brilliant minds are wrong and speak of a bleak outlook from which no one will escape, without having any basis for it.
In the meantime, the Dominican government should continue to freeze fuel prices, increase social benefits, regularly review the monetary policy rate to avoid capital flight, and if necessary raise the public debt by 1% of GDP in 2022 (about 60 billion) to assist the most vulnerable for the rest of the year.
There is no other way out to wade through the crisis with the least possible damage, as long as the engines that drive our economy, even if they slow down their revolution, do not stop in order to maintain the macroeconomic stability we enjoy today, tarnished by imported inflation that weighs on the pockets of the people.
Subsidies => debt! And you want another 1% of GDP added to the total debt while the Dominican peso takes a dive? You should be focusing more on self-sufficiency, change culinary taste back to Dominican staples, reduce your mining of gold (your only true collateral), find a way to curtail births (reduce demand), install (and hire) more technical schools, walk away from the sugar cane industry (it only gets you in trouble and it plays small role in the GDP), this is the time to pay part of your foreign debt, etc.