The People Lie Helpless, by Felix Santana Garcia
This is an article published yesterday by an acquaintance of mine who lives in the Dominican Republic, Felix Santana Garcia. He writes a weekly article for an online newspaper there. (I translated the article from Spanish.)
The People Lie Helpless
By FELIX SANTANA GARCIA
* The author is a financial manager and university professor. Living in Santo Domingo.
In recent years the Dominican people have lost their courage and spirit of defense to the extent that the authorities will increase costs, expenses and prices, and they do not flinch or react to protect themselves from measures that are adverse to their limited or low family budget. The people act as if anesthetized or masochistic.
It is surprising to see that every week fuel prices increase steadily. All goods and services in one way or another are impacted by these increases and the Dominican people whether healthy or hard-worker don’t raise their voice in protest.
The reason may have to do with the opposition that today is divided in some cases and in others silenced by corrupting money.
While inflation is reported from January to May 2013 at 1.72% and the annualized (May 2012 to May 2013) 4.99%, the people see in the markets that this is not so as the prices of a basket of necessary household items is estimated at more than RD $ 25,000.00. The situation is made worse because in many households with more than four members one person barely works with a net income of only RD $ 7,000.00.
No surprise to anyone to see how people entering the malls and supermarkets come out with one little pillow or perhaps empty handed, except for employees of public and private administrations who come out with lofty and luxurious emoluments and associated accessories.
So far this year, there are no signs of improvement in the pronounced inactivity of the economy that is on the verge of falling into recession, despite the injection of RD $ 20,000 million easing of reserve requirements and RD $ 9,000 million of assumed budget savings.
Nothing has been able to push the car of the Dominican economy and all because of the abysmal fiscal deficit over RD $ 205,000 million. All the while Mr. Leonel Fernández, the intellectual and material author of such deficit, has not been invited to go through the Dominican courts when for less foul or violations of the laws of the United States and Mainland China, a common citizen or a senior official would be processed to even the extreme of the death penalty.
For this, there are many Dominican families who are now deprived of a crust of bread and a mabí (sugar water, popularly known as tennis water) if not a glass of milk to sustain their lives.
Whole families with sorrow, eat something only once a day, others have to go to bed with a grain of salt under the tongue and a glass of water, in some cases non-potable water, living below the poverty line. This includes families who will never even reach the point of balance (equality between income and expenditure before taxes and interest, that is if they have a loan).
While all this happens, employees and high officials and the people related to the Executive party of the government enjoy high incomes and cushy benefits that allow them to eat and drink like kings and enjoy good resorts and travel abroad.
Poverty increases as an expense of correcting irregularities among other public finances over the past years. What a shame that it is the dispossessed people who are paying the costs of a party to which they were not invited and the party has not ended yet.
Neither was it felt in the shops or on public roads on mothers day or fathers day and many other traditional celebrations, as the purchasing power is at a minimum. So people only spend money when they find a bit on a piece banana only to live poorly.
The Defender of the people is not present, as this problem has no office or budget in the government, but neither is the Pro-consumer present as seen previously. It is forbidden to punish violators of the laws who sell expired products at inflated prices.
Definitely the people are defenseless, and perhaps, due to a poor diet, the people have no strength to raise their voice in protest, so that if the living forces, now dead, are not resuscitated as recently seen in Brazil by corruption and the high cost of living, soon the Dominican people will be a nation of the dead, ghosts or zombies.
Is the DOP a free floating fiat or pegged?
Just found answer currency is free floating. Seems to me the DR has the following problem:
– Big trade deficits greater than 6% of GDP (but this could just be government officials buying Mercedes Benz’s)
– Ran small deficits from 2004 to 2007 they ran tiny deficits and a surplus (austerity in the face of trade deficits – government deficits must offset the trade deficit drain). Recently, those have turned to deficits, which is right from the MMT “textbook”. Austerity budget surplus plus big trade deficit will lower the GDP denominator creating deficits
This is just a quick look at the data, but it looks like the economy is being starved of net financial asset growth, so people are fighting over a small pie of currency to acquire productive goods. Also, I bet people there do not have access to credit, so they can’t get currency from a bank either. Then you may have a problem of government spending the budget on themselves and not on jobs.
Must do more reading.
This is from wikipedia…
Historical exchange rates
Historically, since the first monetary emission in 1948, the peso was worth about the same as a United States dollar.
The exchange rate for U.S. dollar vs. Dominican peso over the last few decades is as follows:
1984 $US 1 to RD$ 1.45
1993 $US 1 to RD$ 5.00
1998 $US 1 to RD$ 8.00
2002 $US 1 to RD$ 20.00
2003 $US 1 to RD$ 37.50
2004 $US 1 to RD$ 41.70
2006 $US 1 to RD$ 32.00
2007 $US 1 to RD$ 35.29
2008 $US 1 to RD$ 34.90
2009 $US 1 to RD$ 36.00
2012 $US 1 to RD$ 40.50
In 2004 the peso dramatically plummeted; a single US dollar was worth almost RD$60.00.
Since 2004 the peso has reached a more stable rate of RD$35–39 pesos to 1 U.S. dollar. As of January 2013, there were some RD$52.76 pesos to the euro, or around RD$40.40 pesos to the U.S. dollar.
When you say that a big trade deficit implies govt deficit, I assume you are looking at the equilibrium between leakages from the circular flow and the injections. Is that how you are deriving that?
And what if investment was to pick up, what would happen to the govt deficit?
For those who may not be familiar with leakages and injections (withdrawals). there is this video.
Ed, I will check out the video later. I am saying if the trade deficit is 6% of GDP then the government needs to run a deficit of 6% of GDP to keep the private sector in balance.
“the pronounced inactivity of the economy that is on the verge of falling into recession, despite the injection of RD $ 20,000 million easing of reserve requirements and RD $ 9,000 million of assumed budget savings.”
On the verge of recession? It appears they are in depression. That it is this bad and no news leaves the Dominican Republic of its struggle is disheartening. And yet we make light of it.
I sat in the Stuttgart Ocktober fest drinking my litres of good beer with my director/vp sponsor along with some Irish. They talked of the failure of Ireland and the $300 million or so they would need to make the economy work again. I looked up at them and said that is all? We pissed away $7 trillion (FED) on Wall Street and TBTF to bail them out. It woudl seem $300 million is not to much to loan.
I would guess the Dominican needs are equal or less than the needs of Ireland and very much fixable under the right people. A sad state of affairs to which I have no answer.