NewsWhore
03-02-2009, 04:50 PM
Speaking during the Business Forum held at Casa de Campo on Saturday 28 February, Hacienda Minister Vicente Bengoa presented an overview of the global financial crisis and outlined its effects on the DR. He described the crisis as "the perfect crisis" in the style of "the perfect storm." He said that it was a crisis with a pronounced decline in consumption, investment, tax revenues for governments, lending by banks, and trade, and that to make matters worse, "the patient is not responding to known treatments". He stressed that this was very different to the crisis of the 1930s that was based on the real economy, and resulted from overproduction. The crisis of 2008 has happened on the heels of 20 years of maximum growth and economic stability, a period of abundance where regulations and controls were dismantled, giving way to the bubble economy.
He said that during the first half of 2008, the DR was affected by high prices of petroleum, foods, inputs, and the effects were felt in the balance of payments. The authorities brought in measures to rein in the economy, and these are now being dismantled. The government suffered with the decline in tax collections, and the effect of the decline in PetroCaribe Agreement financing when the price of petroleum collapsed. The government did not collect the revenues it had forecast it would, as their projections were based on higher fuel prices.
Bengoa said that the DR was partly shielded from the financial crisis because after the country had its own financial crisis in 2003, Dominican banks were strengthened and adjusted to strict prudential standards. He said that the Monetary Board adjusted Dominican banks to a 10% Solvency Index, when the Basel 2 Agreement established 8%. At the end, the DR banking solvency index reached 14.7%, the highest in Central America and the Caribbean. Furthermore, he pointed out that Dominican bank investments abroad were 4%, and deposits abroad were 2%, so the Dominican bank risk was low. Furthermore, because the Dominican Republic does not trade in stocks, the effects felt by stock exchanges was less pronounced.
Turning to remittances, he said that the volume of remittances received remained practically the same in 2008, increasing by 2%. What was affected was the rate of growth of these remittances. He said that remittances to the DR have shown to be practically inelastic, as most who send remittances do so for their relatives to obtain essential items such as food purchases.
Tourism receipts, the leading foreign exchange revenue producer, were up 4.3% in 2008 to US$4.2 billion, result of 3.9 million tourists in 2008.
In the industrial free zone sector, he said that while apparel manufacturing is down, there have been increases in light manufacturing of cigars, jewelry, food and medical-related goods. Bengoa said that if anything the DR stands to gain from the financial crisis. He said that industries in the US will maintain limited inventories, and will need to source from nearby suppliers, such as is the case of the DR versus China.
He says that prospects for continued growth in foreign investment have remained stable. Within the past six months, according to Bengoa, the Ministry of Tourism has approved US$14.5 billion in proposals for new projects. In addition, Barrick, the largest gold mining company in the world, will be embarking on a US$3.1 billion investment in the DR.
Bengoa concluded his address by saying that the current financial crisis should kill the myth that markets will self-regulate, and warns that this proved not to be the case in the recent previous boom times. International financial reorganization is needed, as the present financial institutions cannot deal with the crisis, he stressed.
Bengoa says that the US was borrowing to finance consumption, destroying its savings in the process. He concluded that there are lessons from this experience that can be applied to the Dominican Republic. "Don't live beyond your means."
More... (http://www.dr1.com/index.html#8)
He said that during the first half of 2008, the DR was affected by high prices of petroleum, foods, inputs, and the effects were felt in the balance of payments. The authorities brought in measures to rein in the economy, and these are now being dismantled. The government suffered with the decline in tax collections, and the effect of the decline in PetroCaribe Agreement financing when the price of petroleum collapsed. The government did not collect the revenues it had forecast it would, as their projections were based on higher fuel prices.
Bengoa said that the DR was partly shielded from the financial crisis because after the country had its own financial crisis in 2003, Dominican banks were strengthened and adjusted to strict prudential standards. He said that the Monetary Board adjusted Dominican banks to a 10% Solvency Index, when the Basel 2 Agreement established 8%. At the end, the DR banking solvency index reached 14.7%, the highest in Central America and the Caribbean. Furthermore, he pointed out that Dominican bank investments abroad were 4%, and deposits abroad were 2%, so the Dominican bank risk was low. Furthermore, because the Dominican Republic does not trade in stocks, the effects felt by stock exchanges was less pronounced.
Turning to remittances, he said that the volume of remittances received remained practically the same in 2008, increasing by 2%. What was affected was the rate of growth of these remittances. He said that remittances to the DR have shown to be practically inelastic, as most who send remittances do so for their relatives to obtain essential items such as food purchases.
Tourism receipts, the leading foreign exchange revenue producer, were up 4.3% in 2008 to US$4.2 billion, result of 3.9 million tourists in 2008.
In the industrial free zone sector, he said that while apparel manufacturing is down, there have been increases in light manufacturing of cigars, jewelry, food and medical-related goods. Bengoa said that if anything the DR stands to gain from the financial crisis. He said that industries in the US will maintain limited inventories, and will need to source from nearby suppliers, such as is the case of the DR versus China.
He says that prospects for continued growth in foreign investment have remained stable. Within the past six months, according to Bengoa, the Ministry of Tourism has approved US$14.5 billion in proposals for new projects. In addition, Barrick, the largest gold mining company in the world, will be embarking on a US$3.1 billion investment in the DR.
Bengoa concluded his address by saying that the current financial crisis should kill the myth that markets will self-regulate, and warns that this proved not to be the case in the recent previous boom times. International financial reorganization is needed, as the present financial institutions cannot deal with the crisis, he stressed.
Bengoa says that the US was borrowing to finance consumption, destroying its savings in the process. He concluded that there are lessons from this experience that can be applied to the Dominican Republic. "Don't live beyond your means."
More... (http://www.dr1.com/index.html#8)