new ones are coming challenges macroeconomic for the countries of Latin America and the Caribbean that will highlight the inflationary process. to face them, Dominican Republic has to make public spending more efficient, target state aid and analyze the clearing of some subsidies little impact on the population.
The approach was made by Eduardo Cavallo, principal research economist in the Research Department of the Inter-American Development Bank (IDB) in Washington DC, after his participation in the 38th edition of the Latin American Congress of Foreign Trade (Clace), held for the first time in the country.
Cavallo indicated that the measures for deal “the global front” are necessary because “the country is inserted in a regional context which is challenging, with weak external demand and low global growth prospects”.
One of the biggest themes worry for him IDB is that, at the regional level, there is a context of rising interest ratewhich makes external financing conditions more expensive and imposes deeper challenges for the economies.
The analyst expressed that it is necessary to prevent the inflationary processes that the global economy is experiencing from contaminating the expectation of local inflation in the medium term. “The Central Bank is acting to prevent that from happening,” he stressed.
He noted that the problem of inflation increase as a result of the foreign scenario is that it reconsiders the poverty levelsincreasing state responsibility, above all, for spending on food.
Public expenditure
Faced with inflationary pressure, governments begin to execute specific action strategies to help the most vulnerable people and sectors to face the increases. However, the aid programs They are a measure that must be paid attention to if they are not well focused.
“The key is spending efficiency. Latin America and the Caribbean have a problem with the spending efficiency”, expressed the economic researcher when specifying that the inefficiency of spending averages a 4.4% of the gross domestic product (GDP).
Cavallo commented that governments must work to eliminate the redundancies and inefficienciesredirecting resources to execute concrete plans to serve the population.
The tax exemptions they are applied to help a segment of the population, but if their objective of translating that relief into the economic burden of the population is not met and ends up benefiting others, the spending is not efficient and needs to be analyzed, he said.
The IDB economist also analyzed that the debt problem is that it has increased significantly, justified, in many cases, by the dynamism of public spending to address the emergency caused by the COVID-19 pandemic. Such spending has raised funding levels above pre-coronavirus parameters.
fuel subsidy
When asked about him removal of the subsidy extraordinary to the fuels, in force since March 2022, responded that the efficiency and rationalization of derivatives is one of the most urgent issues. To withdraw it, he indicated that the number of sectors that use it frequently must be taken into account.
“It must be taken into account that fuel consumption is made by different segments of the population, and if they are suddenly withdrawn (subsidies), they have a economic cost in certain groups,” he said.
“The theme of fuel subsidies it’s a complicated theme because, in addition, there are the environmental impacts of these subsidies, just when the world is in the energy transition towards a scheme to promote the use of renewable energies”, he considered.
Uncertainty with tourism
The economist of IDB expressed the concern of that international organization regarding the tourism expectations in countries that depend on this industry. “There is uncertainty about the arrival of tourists,” he said.
When talking with journalists, Cavallo anticipated that there are several economic components that will begin to vary. One of them is the financial sectorwhich faces increases in interest rates, and this variation affects people’s income.
