Dominican Republic and Its Debt Term Paper

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Dominican Republic

The Impact of International Debt on Poverty and Development in the Dominican Republic

In Third World countries like the Dominican Republic, there can be no question that poverty is rampant and development is slow in manifesting. Unfortunately, pinpointing the precise causes of poverty is not as easy as asserting it is the fault of the government, or that it is caused by unjust economic practices. Despite the ambiguity, it is possible to highlight some of the factors that influence the extent of poverty and the lack of development in Third World nations, especially the Dominican Republic. In fact, it is apparent after some examination that the heavy burden of debt the nation carries is influential in the persistence of poverty in the country, especially when we consider that otherwise the economic indicators suggest that the strength of the Republic's economy is improving. The purpose of this study is to trace the effect the debt has on poverty and development in the nation, the impact that this has on the choices available to its citizens, and what strategies could be implemented to improve the situation in the Dominican Republic.

In fact, the Dominican Republic has shown significant economic improvements in the past few decades, standing as one of only three Central American nations to have a per capita GDP that has surpassed levels recorded in the 1970s (Schipke). With such a promising economic outlook, it might come as a shock to some observers that poverty is pervasive and systemic in the Dominican Republic. It represents one of the most significant issues facing the people of the nation, especially those who live in rural areas. It is those individuals who have been particularly hard-hit by the rigors of poverty. One of the most troubling contributing factors that affects poverty in the nation is the high level of public debt that the government has incurred from international organizations like the IMF or the World Bank. In all of Central America, including the Dominican Republic (though interestingly excluding Guatemala) the average national debt stood at 47% of the national GDP at the end of the 2006 fiscal year (Schipke). With national debt at levels this high, it is little wonder that poverty continues to dominate domestic issues in the Dominican Republic. The sheer amount of money it takes to pay this outstanding debt is money that could have been spent on social services and domestic programs to strengthen the economy and lift the impoverished out of their circumstances.

Of course, critics could point out, why should we expect that increased spending on social services would have any effect on the level of poverty in the Dominican Republic? The reality is, however, that numerous studies -- some specifically focused on the Dominican Republic -- have demonstrated that there is a direct connection between certain aspects of society and poverty levels. For example, the "Dominican Republic Poverty Assessment," produced by the World Bank, found that there are strong correlations between poverty and the following factors: access to healthcare services, education levels, and the absence of basic social services ("Dominican Republic Poverty Assessment" viii). In other words, poverty levels seemed to be highest among those group of Dominicans that had the least amount of access to healthcare services, the lowest education levels, and an inability to reach other crucial social services. Greater access to these social "perks" was positively correlated with lower levels of poverty in the country implying that providing greater access to these social services can help alleviate levels of poverty throughout the country.

This is difficult, however, when we recognize that the international debt burden in the Dominican Republic pushes 50% of national GDP. In a country with a GDP of only $17.3 billion, and $2,062 per capita GDP, this is a significant portion of the national productivity that is immediately siphoned back into paying off old debts ("Economic Indicators" 1). With so little left to spend on other essential services, social services like education and healthcare have taken a backseat to other national priorities, undermining domestic efforts to alleviate poverty through the application of social services. Overall, in an average year, the Dominican Republic only spends 6.3% of its GDP on social services -- 2.5% on education and 1.5% for healthcare ("Dominican Republic Poverty Assessment" xi). With such low levels of spending, undoubtedly influenced by the complete lack of available resources after paying international debts, it is little wonder that poverty continues to be a pervasive issue in the Dominican Republic.

Interestingly, poverty levels have been decreasing somewhat in the Dominican Republic in the last few decades. By the beginning of the 1990s, the Dominican Republic experienced a significant upturn in its national economic fortunes. This fueled significant economic growth in the nation and facilitated some reductions in poverty levels. For instance, in 1986, poverty levels stood at 37%. Twelve years later, poverty had dropped to a still high but nonetheless impressive 29% ("Dominican Republic Poverty Assessment" vii). A 6% reduction in poverty in just more than a decade is important and represents real progress. However, the Dominican Republic still faces poverty levels that affect well more than one-fifth of the population, almost certainly as high as one-quarter. With rates of poverty this high, it is important to consider other means of reducing poverty levels, especially since we cannot reasonably expect economic growth to continue unabated indefinitely. Eventually recession or a change in the markets will have adverse effects in the Dominican Republic and could send poverty rates escalating once more if social protections are not put in place to protect citizens of the country from such an economic disaster.

One of the significant issues in the country is that the poverty levels are not spread evenly throughout the country. For political, social, and economic reasons poverty is concentrated in the rural parts of the country. For the rural poor, who predominantly attempt to make their living by farming, middlemen and government taxes prevent them from earning a reasonable living. Even when farming high value crops such as coffee, it is difficult for rural farmers to do very well for themselves. A recent agricultural census revealed that 2% of the agricultural landowners in the Dominican Republic control 55% of the land, while 82% of the landowners only control 12% (Langston). In other words, there is a stark divide between rich and poor in the Dominican countryside.

This economic divide is only exasperated by the fact that of the scant social services that are available most are concentrated in urban areas. For the poor farmers who cannot afford to come into the cities for educations or healthcare, the cycle of poverty persists. And because the country is overly burdened with debt, there are not enough resources to expand these social services into the countryside. As a direct result, we find that most of the rural poor is unable to benefit from the recent economic growth the country has experienced. The social services that should be extended to all are focused only in the cities of the country because this is where it most affordable to implement these kinds of social services. As a result, we can see a wide disparity in poverty levels between urban and rural areas. In the rural parts of the country, the poverty rate is as high as 42%, while in the cities it is only as high as 21% ("Dominican Republic Poverty Assessment" vii). Without question, this difference is not only related to international debt levels, but they are certainly a contributing factor because they effectively reduce the amount of money that can be spent on crucial social services that can help life people out of poverty in the Dominican Republic.

Conventionally, economic growth is seen as the best way to lift people out of poverty (Schipke). In truth, economic growth can have significantly positive effects on poverty levels, as evidenced in the Dominican Republic. However, the case of the Dominican Republic also illustrates that economic growth can only improve the situation so far. While poverty levels are decreasing in the country, they are decreasing at a much faster rate in the cities, primarily because there the people have greater access to critical social services such as education and healthcare. In the rural parts of the country, poverty levels are still very high. To alleviate this the country needs to make more resources available for the people who are most affected by extending social services into the countryside to reach these people directly. Of course, with so much of the country's GDP allocated to international debt, it will be difficult to find enough resources to improve the situation in this fashion.

In the meantime, there are a number of other important steps that can be taken to decrease poverty levels. One of the best methods is to strengthen the quality of national institutions -- improve government effectiveness, reduce corruption and political instability, and improve the rule of law. Also, improving the quality of the monetary institutions in… [END OF PREVIEW]

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