Economic bonanza accompanied by figures that deny optimism

Santo Domingo — Favorable economic results at the end of 2024 and the previous four-year period would allow us to claim victory if they did not coincide in the debate with negative assessments of subsidies that throw resources down the drain and translate into a sharp deficit of state finances that the Government voluntarily renounces to solve with fiscal reform. There seems to be no brake on the decline of investments or the spiral of public indebtedness sufficient for some sectors to keep a red light on.

On the eve of President Luis Abinader’s announcement of his intention to massively reduce the payroll through ministry mergers, the Dominican State’s gigantism, denounced as having dimensions corresponding to rich countries, was expressed with the existence of 23 ministries and an Attorney General’s Office of the Republic of the same category.

Four months after the intentions were known, the country entered a new year with a budget deficit of 3.1%, equal to 2024. This means a virtual freezing of all items and an even more significant reduction in capital investment of 12.5%. Change so that everything remains the same?

These numbers probably moved the expert and former Director General of Internal Revenue, Magín Díaz, to recently predict that “the interest paid on indebtedness to compensate for the acute limitations of tax income and the permanence of the current use of public money, which some consider not to be a priority, will ‘eat up the budget.’

Their criteria coincide to some extent with reproaches from other quarters that tend to remind the present state administration that besides aspiring to fiscal reform, it should propose to reform spending with efficiency and administrative rationality. For some observers, the country seems to be subordinated to an active machinery of supernumerary jobs that defies any intention to bring the Public Administration to a reasonable size.

In reaffirmation of a strong resistance to disciplining spending the day before yesterday, the newspaper Diario Libre referred to the proposals to create 23 new institutions that are currently before the National Congress in contradiction with the goal of rationality that is supposed to be set by President Luis Abinader as ruler and maximum leader of the PRM party in total control of the Legislative Branch. Their minds do not fail to consider that the current ruler’s era concludes on August 16, 2028 and that there would already be leaders on the rise toward aspirations to the throne and willingness to fill the vacuum left by the one leaving.

THE CLAIMS

Opinion leaders took advantage of the end of the year to align themselves in favor of State guidelines that guarantee, from their point of view, appropriate economic progress. With a cautious reaction to the Dominican foreign indebtedness, Martin Polanco, editor of the daily El Caribe, warned this week that the country could be increasing its exposure to the risks associated with global interest rates and the volatility of the market in which countries operate.

It referred to the fact that by increasing its appeal to external credits, the Government has turned towards the issuance (which would not be very convenient) of sovereign bonds for a greater dependence on international private financing, distancing itself from multilateral and bilateral debts contracted with traditional organizations and through bilateral agreements that imply less costs and dangers for the nations.

This newspaper editorially estimated a few days ago that “2024 must be the year to put in check the widespread informality of the economy that characterizes many low scale activities used to generate income outside the regulations of the tax system and the acquisition of innovations capable of increasing productivity”.

Diario Libre said almost at the same time that 2025 comes loaded with challenges that the country must face: “It will have to deal with the consequences of the withdrawal of the fiscal reform from the Congress and the search for the necessary resources to continue the necessary public works.” It called for considering the need to maintain the growth we aspire to as a nation and society.

CHALLENGES REMAIN

From the appreciation-balance of the Dominican economy, the former governor of the Central Bank, José Lois Malkún, opined that although 2024 was a good year, with most of the indicators showing improvement for 2023, the country must move this time toward “ancestral problems” such as the mismanagement of the electricity sector which strongly affects public finances. At the same time, the trade balance deficit is still too high. There is an underlying fear of destabilization.

Based on the country’s results in the “Global Innovation Index 2024,” which has continued to fall from 90th to 97th place in the world ranking, a report in this newspaper by Mayelin Acosta states that the Dominican Republic has, among its main challenges, to improve and invest in innovation for its essential impact on development. It does not seem this is being done while the rest of the neighborhood is advancing towards its goals.

Concerned about the country’s backwardness, which at the end of 2024 appeared to be too far behind in the use of renewable energy sources, the former governor of the Central Bank, Bernardo Vega, has just highlighted that: “Unfortunately, in our country the production of solar energy is less than 10%” To make matters worse, the three state electricity distribution companies, “the infamous EDES,” are fighting to prevent the use of the sun, which provides energy for free, from expanding.

Looking into the immediate future (2025), economist Nelson Suárez, a frequent contributor to this newspaper, warned that ” if indebtedness continues to increase without reducing the fiscal deficit (forecast for this year at 3.0% of GDP), the country could face financial unsustainability in the near future.”

PRIVATE DYNAMISM

Although the State always wants to appear as the only hero of growth, in 2024, as it happens mostly through time, the greatest contributions to the expansion of the Gross Domestic Product came from the hotel, bar, restaurant, and commerce sectors in addition to construction and free trade zones. This data was included in a recent article by Jaime Aristy Escuder, projecting the future of the Dominican economy.

He added: “This means that despite the increase in the cost of financing during the year, economic agents maintained a high rate of consumption and companies executed investment projects with high rates of return.” He explained that the construction sector is the most sensitive to interest rates.

The day before yesterday, in declarations to the newspaper El Caribe, Eliseo Cristopher, president of the confederation that represents them, informed that micro, small, and medium-sized construction companies, after experiencing slow growth at the beginning of 2024, began to recover dynamism. This area of the economy is particularly affected by high interest rates and limited participation in state financing, for which it seems they prefer to pay obeisance to the big ones.

WHAT IS GOING WELL

Attention to data on the reality of the Dominican economy without giving the floor to the Central Bank would be an unacceptable journalistic omission. From its most significant measurements, it is clear that by the end of 2024, the Dominican Republic’s economy will be advancing towards achieving the highest growth in Latin America.

Taking into account the recent evolution of the international environment and, in particular, “the recent reductions in interest rates in advanced economies, the CB reduced its monetary policy interest rate by 25 basis points last December to favor the expansion of liquidity or money in the hands of the people to spend at their discretion, it reduced the rate that most influence the cost of private financing and expenses at the national level, from 6.00% to 5.75%.

For its healthy and dynamizing flexibilities, the Central Bank said to have weighted: “The good performance of the Dominican economy and of the monetary spaces in the face of inflation that has remained in the lower part of the target range 4.0% +1.0% during the present year and the recent moderation of private credit… Whoever asks for more is a “gandío” (a hoarder who wants the most or the best things for him/herself without thinking of the needs of others.)