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November 2012, Week 2

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Wed, 14 Nov 2012 22:08:04 -0500
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Anti-Austerity Protests Rock Dominican Republic

Here's How Bad the Deficit Problem Is in the
Dominican Republic

	Dominicans attend a demonstration against the
	fiscal reform in Santo Domingo, Dominican
	Republic, Sunday, Nov. 11, 2012. The measure
	will increase the general sales tax to 18
	percent from 16 percent, will raise the price
	of gasoline and impose taxes on basic food
	products. The sign reads in Spanish: "Social
	inequality is more violent than any protest."
	(Manuel Diaz/AP Photo)
	http://tinyurl.com/ar2h4kt

By Manuel Rueda
ABC News
November 13, 2012

http://abcnews.go.com/ABC_Univision/News/dominican-republics-fiscal-reform-protests-deficit-problems/story?id=17708900#.UKQESGewUzR

Imagine thousands of protesters in a hot tropical
country, meeting in a park, carrying signs that say,
"there's not a lack of money here, there are just too
many thieves." Or "tell me who's in jail and then we
can talk about raising taxes."

Add some lively percussion to the mix, and that's
essentially what's been going on in the Dominican
Republic since last Wednesday, when the
government said that it would raise taxes on citizens
so that it could cut its massive deficit.

The pictures from the protests against the
government's fiscal reform package, also known as
the paquetazo, have been widely circulated on social
media sites.

A bystander at one of the protests was even shot by
police on Thursday. There's also a popular Facebook
meme that compares the latest protest in Santo
Domingo, which took place on Sunday, to a historic
protest that unleashed a rebellion against military
dictatorship back in 1965.

Anna Szterenfeld, the Latin America Director at the
Economist Intelligence Unit, says the government's
financial situation is rather critical, but it's not
exactly Greece.

The Dominican government is expected to end 2012
with a deficit of $4.6 billion, an amount that
represents roughly 6.8 percent of the country's GDP.
This budget gap is two times larger than last year's
deficit.

And if the government continues to sustain such a
bloated deficit, it may not be able to secure a $2
billion IMF loan that is currently in the works,
because the IMF has explicitly said it will not loan to
any country that doesn't have its finances together.

So, in order to reduce the deficit for 2013, the
Dominican government approved a fiscal reform
package on Saturday that raises the national sales
tax from 16 to 18 percent. New taxes will also be
imposed on liquor, cigarettes and fuel.

Protesters who have taken to the streets of Santo
Domingo and other Dominican cities say they
understand that there is a debt problem. But they
believe the government should cut down its own
expenditures, instead of hitting citizens with new
taxes.

"We pay all these taxes, and we see nothing in
return," said Lillian Castillo, who attended a protest
in Santo Domingo's Independence Park on Sunday,
with her husband and a friend.

Like many at the protest, Castillo believes that
government corruption and overspending have led
to the country's bloated deficit. She mentioned
Education Minister Josefina Pimentel, whose salary
was raised from $4,660 to $7,500 per month, as tax
increases were being discussed by the country's
Congress.

"I consider myself to be apolitical," Castillo said via
Facebook. "But this fiscal reform package was the
drop that made the glass spill." Szterenfeld
attributes the spike in the Dominican Republic's
deficit to outgoing president Lionel Fernandez who
spent millions in infrastructure projects, partially
aimed at "securing" his legacy. Big spending
programs also helped his hand-picked successor,
Danilo Medina to win the presidential election in
May.

Another factor that keeps the deficit large is that the
government is currently spending more than $1
billion every year in electricity subsidies.

"Fiscal adjustment had to happen," Szterenfeld said.
"But where the real anger comes from is that people
are seeing that spending by the government is not
changing."

If the Dominican Republic does not decrease its
deficit, it will be more expensive for the country to
borrow money from banks, and to sell bonds. These
funds are crucial to jumpstarting poverty reduction
programs and education initiatives that the country
needs and that Medina had promised to deliver
during his presidential campaign.

Szterenfeld also added that while protests against
the fiscal reforms have gained some momentum in
recent days, they are not likely to turn into a
massive social movement that will destabilize the
current government.

Protest numbers have indeed been modest, with just
6,000 people attending the protest at Santo
Domingo's Independence Park, according to local
media reports. Even if pictures from the crowded
site look impressive, it's worth noting that more
than two million people live in Santo Domingo's
metropolitan area.

Another key factor is that people in the Dominican
Republic are not losing their jobs at record speeds
like in Spain, or Greece.

In fact, the economy of the Dominican Republic has
been performing rather well. Propelled by tourism,
mining and manufacturing, its economy has
attained one of the fastest growth rates in Latin
America over the past three years, and grew by 4.5
percent in 2011.

The country could actually be able to "grow itself
out," of the deficit problem if the economy continues
to work well, and if the government gets more strict
with how it spends its money.

Szterenfeld said that the timing of these fiscal
reforms, right at the beginning of President Medina's
four-year term, is rather interesting.

"He's trying to get the painful [part] done now," she
said. "Once he's able to get the public finances in
order, he should be able to start doing the things he
was elected for."

___________________________________________

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