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Dominican Republic Foreign Debt
The Dominican Republic's foreign debt had grown to
nearly
US$4 billion by 1989, about double the 1980 total. The
country's
debt skyrocketed during the 1970s, barely more than a
decade
after Trujillo had paid it off, an event he had proclaimed
as the
"financial emancipation of the nation." Subsequent
indebtedness
was incurred in the context of a tenfold increase in the
oil
import bill, increasingly unfavorable terms of trade, and
volatile sugar prices. Persistent balance-of-payment
shortfalls,
relatively easy access to loans from foreign commercial
banks,
and the demand for funds occasioned by ambitious public
sector
projects rapidly indebted the country; from 1975 to 1980,
the
national debt surged from US$700 million to nearly US$2
billion.
Further deterioration in the country's terms of trade,
unprecedentedly high interest rates, and international
recession
increased the country's foreign debt in the 1980s, even in
the
absence of new commercial lending.
In 1988, 63 percent of the public sector external debt
was
owed to public institutions, including 20 percent to
multilateral
organizations and 43 percent to bilateral creditors; 23
percent
was owed to 90 commercial banks, with the remainder
classified
under other categories, such as oil credits owed to Mexico
and
Venezuela. The structure of the country's debt, which
remained
rather stable during the decade, differed from the debt
structure
of Latin America as a whole, in that so much more of the
region's
foreign liabilities (57 percent) were commercial. From
1983 to
1988, Dominican debt as a percentage of GDP grew from 48
percent
to 94 percent, signaling that debt was swiftly outpacing
economic
output. As a result of frequent rescheduling, however,
debt
repayments as a percentage of total exports declined from
23
percent in 1983 to 15 percent in 1988.
The BCRD, the central bank, took an activist approach
to
managing foreign debt. The major tool was rescheduling.
Beginning
with a rescheduling of US$500 million of its commercial
debt in
1983, the country embarked on a series of debt
negotiations that
entailed a
Paris Club (see Glossary)
rescheduling
agreement of
US$270 million in 1985, another commercial bank deal of
US$787
million in 1986, and a rollover of Venezuelan and Mexican
oil
debt in 1987. Although debt rescheduling eased the
short-term
debt burden and improved the government's cash flow, it
did not
establish long-term solvency. In an effort to reduce its
actual
debt, the government experimented with debt-equity swaps,
a
process by which investors purchased the country's United
Statesdenominated debt at a discounted level in local currency,
which
was then applied to investments in the republic. In 1988
the Debt
Conversion Unit of the BCRD's Monetary Board approved the
concept
of debt-equity conversions, and in 1989 the first such
swap
converted US$9 million in debt into a free-zone investment
at a
discount of 35 percent. Investors provided the BCRD with
more
than US$650 million in other proposals for investments in
tourism, free zones, agro-industries, utilities, and
mining. To
restrain expansion of the money supply, the BCRD consented
to a
maximum of US$50 million in conversions annually. Even
under the
best circumstances, however, debt-equity swaps would only
partially reduce the debt. As of late 1989, the government
and
its creditors had not agreed on a comprehensive debt
strategy.
Data as of December 1989
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