The Dominican Republic is certainly one of the victims of the recent global crisis that saw developed markets all over the world fall to unexpected levels. With the country highly dependeng on the global market because of its tourism industry, it is no wonder how the Dominican Republic's economy could go weak.What most governments do nowadays is to flush their own economies with money, hoping to heat up the economy and allow citizens to purchase goods and consume some more. The theory is that, with additional money, the economy will grow once again after that sharp boost.
However, this is no cheap move. A government may always print its own money so that consumers can have something to spend, but while this is effective at first, printing money can have adverse effects. For one, inflation may be boosted as well, making it more difficult for people to acquire purchasing power. Somehow, if a government wants to give out subsidies, they have to source most of it somewhere.
One source of potential cash are loans, and this is what most governments are trying to pursue today. With interest rates in some countries even nearing nil, this is an excellent time to get a loan and increase capital. This is the same action that the government of the Dominican Republic chose after being granted a US$1.7B loan from the International Monetary Fund (IMF). Of this amount, the country's government will receive an initial amount of $300M. This loan will be used to revive the ailing economy of the Dominican Republic.
The Caribbean nation's Central Bank announced last Monday that the Washington-based lender approved the loan on certain conditions. These conditions include the reduction of tax exemptions, better banking supervision, and more efficient handling of public debt.
A recent $600 million budget deficit prompted the government to rush and get a loan from the IMF. This is also the second time the government requested a loan from the IMF. The first one is a $700 million loan used to overcome the 2003 banking crisis.
