NewsWhore
02-16-2011, 02:50 PM
Writing in today's Hoy newspaper, former Central Bank governor Bernardo Vega criticizes the quality of indebtedness taken on by the governments. He refers to a recent publication in a magazine published by President Leonel Fernandez's think tank, Funglode on the subject that emphasizes the marked increase in public debt.
In 2000, the domestic public debt was 14% of the total non-financial debt. 86% of the debt was foreign debt. By 2010, the domestic debt was 35% and the percentage of foreign debt had declined to 65%. "That means that more than a third of the total debt of the government is domestic, represented primarily by recapitalization bonds of the Central Bank and bonds of the Treasury that have been purchased by commercial banks and other investors."
He makes the point that the Ministry of Hacienda has been paying higher interest rates on domestic bonds in pesos than on sovereign bonds in US$. The advantage of the domestic bonds is that the government does not have an exchange risk. "If it takes on at 10% and abroad at 5%, if the peso is devalued by 5%, the cost for the Ministry of Hacienda will be the same," he explains. Moreover, to fall in arrears or not pay the domestic debt will have less serious repercussions than with foreign debt, writes Vega.
He also shares the information appearing in the Funglode publication that the consolidated debt of the state (domestic, foreign and financial n basically the debt of the Central Bank) that in 2000 was 18.4% of the GDP, at the moment of the domestic banking crisis reached 48.2% to decline to 34.7% during the first year of the second government of Leonel Fernandez, but as of last year it increased to 37.3% of the GDP.
"Are there enough funds to pay the debt?" he asks. The article explains that the government has continued to take on debt because the tax revenues are down and it compensates this with loans. He explains that it is less costly to take on debt politically speaking, if one controls Congress, than to promote a new tax reform to reduce dependency on taxes.
He says that the article indicates "the capacity to take on debt is reaching its limit, since with the decline in income, the service of the public debt, now near 43% of all tax revenues, is too high... and thus the government needs to be very prudent from now...."
Vega writes that the options are clear: more indebtedness or new taxes or austerity in the spending. The government while it can and as the elections get nearer, will prefer the first option.
The article focuses on the need to pay attention to the quality of the indebtedness. Vega himself has criticized the practice of borrowing from commercial banks. He mentions that Hipolito Mejia was known for these bad operations but in the 2011 budget the present government has included 13 of these loans for US$1.32 billion. "And as if this were not enough, a RD$354 million loan for the Monte Grande dam is in Congress and it does not even specify who will lend the money, at what interest rate or timescale. And the Senate approved it."
More... (http://www.dr1.com/index.html#3)
In 2000, the domestic public debt was 14% of the total non-financial debt. 86% of the debt was foreign debt. By 2010, the domestic debt was 35% and the percentage of foreign debt had declined to 65%. "That means that more than a third of the total debt of the government is domestic, represented primarily by recapitalization bonds of the Central Bank and bonds of the Treasury that have been purchased by commercial banks and other investors."
He makes the point that the Ministry of Hacienda has been paying higher interest rates on domestic bonds in pesos than on sovereign bonds in US$. The advantage of the domestic bonds is that the government does not have an exchange risk. "If it takes on at 10% and abroad at 5%, if the peso is devalued by 5%, the cost for the Ministry of Hacienda will be the same," he explains. Moreover, to fall in arrears or not pay the domestic debt will have less serious repercussions than with foreign debt, writes Vega.
He also shares the information appearing in the Funglode publication that the consolidated debt of the state (domestic, foreign and financial n basically the debt of the Central Bank) that in 2000 was 18.4% of the GDP, at the moment of the domestic banking crisis reached 48.2% to decline to 34.7% during the first year of the second government of Leonel Fernandez, but as of last year it increased to 37.3% of the GDP.
"Are there enough funds to pay the debt?" he asks. The article explains that the government has continued to take on debt because the tax revenues are down and it compensates this with loans. He explains that it is less costly to take on debt politically speaking, if one controls Congress, than to promote a new tax reform to reduce dependency on taxes.
He says that the article indicates "the capacity to take on debt is reaching its limit, since with the decline in income, the service of the public debt, now near 43% of all tax revenues, is too high... and thus the government needs to be very prudent from now...."
Vega writes that the options are clear: more indebtedness or new taxes or austerity in the spending. The government while it can and as the elections get nearer, will prefer the first option.
The article focuses on the need to pay attention to the quality of the indebtedness. Vega himself has criticized the practice of borrowing from commercial banks. He mentions that Hipolito Mejia was known for these bad operations but in the 2011 budget the present government has included 13 of these loans for US$1.32 billion. "And as if this were not enough, a RD$354 million loan for the Monte Grande dam is in Congress and it does not even specify who will lend the money, at what interest rate or timescale. And the Senate approved it."
More... (http://www.dr1.com/index.html#3)