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Dominican Republic ECONOMIC POLICY
Fiscal Policy
The Budget Office within the Technical Secretariat of
the
Presidency (Secretaria Técnica 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
Azúcar--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
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