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Dominican Republic Table of Contents

Dominican Republic

ECONOMIC POLICY

Fiscal Policy

The Budget Office within the Technical Secretariat of the Presidency (Secretaria TÚcnica de la Presidencia) administered fiscal policies. The fiscal year (FY--see Glossary) concurred with the calendar year throughout the government, except in the case of the State Sugar Council (Consejo Estatal de Az˙car--CEA), which ran on the cycle October 1 to September 30. Fiscal authorities traditionally pursued rather conservative policies, allowing for small deficits and occasional surpluses. Fiscal deficits grew in the 1980s, however, as the result of dwindling revenues and increasing losses from price and exchange-rate subsidies to state-owned enterprises. Revenues, as a percentage of GDP, fell from 16 percent in 1970 to a low of 10 percent by 1982, placing the Dominican Republic below virtually every Latin American country in this category. Liberal incentive laws enacted to spur industrialization during the 1960s and the 1970s were the main cause of the erosion of the revenue base. Beginning with the Jorge administration, officials began to increase taxes on an ad hoc basis, assessing mainly international trade. A moderate expansion of revenues resulted. Nonetheless, fiscal deficits averaged roughly 5 percent of GDP a year in the mid-1980s to the late 1980s. The shortfalls were financed by the printing of more pesos, a policy that accelerated inflation. Successive governments demonstrated a lack of political will to address the structural deficiencies on both the expenditure and the revenue sides of the national budget.

The execution of fiscal policies was influenced by personal and political custom. For example, many businesses illegally received tax-exempt status because of political contacts, while other qualified firms did not. Tax evasion among wealthier Dominicans was common. Government corruption, particularly among the parastatals, was believed to be similarly commonplace. The 1989 conviction of former president Jorge on charges that he and military leaders embezzled large sums on military contracts illustrated the extent of official corruption. The lack of competitive bidding on government construction contracts also contributed to perceptions of fiscal mismanagement. Despite Balaguer's anticorruption drive of the 1980s,institutionalized graft prevailed.

Data as of December 1989