Scott: While we obcess with Iraq another little time bomb ticks. yes it is small. It has no weight in the affairs of the world. However depending on whose numbers you believe some 25-40% of their population already lives in the US, legally or otherwise.
If the DR does an Argentina they will not sit on the island and rot. They will move to US, legally or otherwise. There are time bombs like this all across the Carib. We have potential for a chain implosion where the implosion of each island puts intolerable economic and demographic strain on the next. As with the currencies I am NOT saying this will happen but rather that just as with 911 DC finds the choices icky and so has chosen not to deal with anything. Every month we roll the dice. Kosovo was the end of the world because the EU might have been stuck with a couple of hundred K Albanian refugees. DR could give us a million in a week. Ditto Venezuela or Jamaica. A Cuban implosion after Fidel's death could be 2-3M in first week. Interesting times.
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Dominican Republic
A spectacular fall from grace
Dec 11th 2003
From The Economist print edition
An incompetent government and a tricky choice for the IMF
ONCE again the International Monetary Fund faces an awkward decision in a small Latin American country. Before the end of the year, it is due to rule on whether to resume a $600m loan programme agreed in August and suspended in October after the government, unannounced, paid out a similar amount to renationalise the country's two main electricity distributors. As so often, the Fund is on a hiding to nothing. Resume support, and it will be blamed for inevitable public-spending cuts—and for blessing a dodgy bank bail-out. Refuse aid, and it will be charged with casting adrift a fragile economy flirting with debt default.
The Dominican Republic has suffered a spectacular fall from grace. From 1996-2000, the economy grew by over 7% a year, led by tourism and duty-free assembly plants, making clothes and other goods for the United States. Then, growth stalled, along with the world economy. The government of Hipólito Mejía, of the centre-left Democratic Revolutionary Party, which took office in August 2000, responded with public spending, financed by foreign borrowing. That led to worrying, but still manageable, deficits. But the slowdown also exposed a massive bank fraud that has crippled the country.
Last April, the central bank belatedly took over Baninter, the third-largest commercial bank, which had suffered a run on deposits. It discovered a hole in the bank's accounts of some 60 billion pesos ($2.4 billion), equivalent to 12-15% of GDP. A third of the losses were generated in the bank's last three months, as its owners erased dodgy loans to themselves from the books and whisked transfusions of cash from the central bank to accounts abroad.
Baninter's owner, Ramón Báez, is in custody and awaiting trial. But many Dominicans doubt that punishment for the bank collapse will fit the crime. Mr Báez is very well-connected. He gave gifts or money to politicians, army officers and judges; after his arrest, many of them visited him in prison. The central bank showed similar generosity. When it took over Baninter, by law it should only have compensated depositors up to a ceiling of 500,000 pesos ($12,000). Instead, it guaranteed all the bank's liabilities, including offshore deposits. Three-quarters of this money went to 80 account holders.
Dominicans will soon feel the cost of that, as the government struggles to get its finances under control. The ratio of public debt to GDP has doubled to 50% under Mr Mejía. To close the fiscal gap, he has resorted to a 5% tax on exports and tourism, a 2% import surcharge and a tax on financial transactions. But receipts have been lower than expected. Businessmen are reluctant to pay more taxes as long as the government fails to cut its spending.
Mr Mejía's mind is on politics. Although unpopular, he is seeking a second term in an election due in May. His former supporters among the poor have been hit by the collapse of the peso, which lost half its value against the dollar last year. That has pushed inflation to 35%. Electricity blackouts have become more frequent. More than 20 people have died in clashes with police during protests this year against rising prices and job losses.
The protestors blame the IMF for their plight. They should blame Mr Mejía. Any money that the Fund might give to the Dominican Republic in the next few months is likely to be wasted on pre-election spending. Until the politicians show signs of taking responsibility for their actions, it is hard to see why they deserve any help from the Fund.
posted by scott 7:52 PM