Donald Guerrero Ortiz, finance minister of the Dominican Republic, talks to Silvia Pavoni about the progress the country has made and his hopes for continued investment and improvements.

Donald Guerrero Ortiz

A former banker, Donald Guerrero Ortiz became finance minister of the Dominican Republic in August 2016. Just over a year into his public sector life, he talks to The Banker about the country’s sustained growth (which has outpaced most in the Latin American and Caribbean region), a greater investment in the provision of public services, and the focus on creating the right conditions to attract foreign investors to the local capital markets.

Q: The Dominican Republic has grown at a sustained rate over the past few years. Can this continue?

A: In the first half of 2017 our gross domestic product [GDP] grew by 4%, which is lower than in the past but closer to [our long-term] economic potential. We expect to have a compound annual growth of 5% to 5.25% for the end of 2017. Both public investment and revenues are growing as expected.

We have maintained a very positive outlook with a very low inflation rate, below the target of the central bank, which is 4% plus or minus 1%. We were in the [region] of 2% for the first half of the year. The exchange rate is also very stable. That explains the [large flows] of remittances into the country and of foreign direct investment, mostly directed to the tourism sector. In total, we have more than $24bn in foreign exchange inflows into the country. We don’t expect any deviation from these numbers for the rest of the year: 2017 will be another good year for the Dominican Republic.

Q: Economic growth has translated in a 12% reduction of poverty in the Dominican Republic, according to the World Bank. However, it is still calling for greater investment in health and education. What are your plans to improve the situation?

A: We always need more money and more investment. We have historical [gaps] in the provision of public services in health and education that require large amounts of investment.

As far as education is concerned, the country is now spending heavily to build new schools. There has been a complete, radical change from what the school service used to be. Only in 2013, the average length of the school day, for public schools, was 2.5 hours; it is now eight hours. The present standard school hours [programme] was launched in 2014. Students now receive breakfast, lunch and snacks at school and have uniforms and books supplied by the government.

It’s a major change in terms of investment in public education. The [new system] leaves families with only the provision of dinner – breakfast, lunch and snacks account to 7500 pesos per month per child. So it’s a real increase in disposable income for families.

That’s why the World Bank [reported] that we’ve been reducing the level of poverty in the island by 12%. Ninety eight per cent of school-aged children go to school. A few years ago it wasn’t anywhere near that, for two reasons: we didn’t have enough [public] schools and not all families could afford private education. We have also improved teachers’ salaries by about 60%.

When you look at health, again, we’re not at the level of investment the country needs, but we are planning new hospitals and have significantly increased salaries for doctors. In 2017, a total of 48% of public spending has gone into the provision of services. The biggest increases in budget allocations were for education and health services and the same will happen next year.

The government is announcing the building and the remodelling of a total of 56 hospitals throughout the island. On top of that, [we’re creating] primary health centres to attend to basic needs. It’s a structural change in the way the public health system used to work, where everyone used to go to hospitals and hospitals were full. Now it’s going to be divided between primary centres and hospitals.

In a couple of years, in 2019, you’ll see a difference in the Dominican Republic, where children will continue to benefit from the new education system and hospitals will have been renovated. It’s going to be a radical change in the living standards of the population. And the numbers are already showing this. Further, when you look at public spending in relation to GDP, you see a decline from 2013 from 20.7% to 17.8% – GDP has been growing and has amortised additional investment in public services.

Q: This July, the Dominican Republic’s sovereign debt was upgraded to Ba3 by rating agency Moody’s. When do you think it could reach investment grade?

A: In five to six years we’ll probably be in a position to be considered investment grade, which is an objective for the country. Before I leave government [at the end of this term, in 2020], we should get another improvement in the agencies’ ratings. The conditions are set. In terms of economic growth, we expect it will continue at about 5% [in the medium term] consistently; the country’s international balance should remain strong.

There is no major threat in terms of, for example, increases in prices of oil [which the country needs to import], which should stay around current levels. That would otherwise have an impact on our balance of payments. On top of that, the policy of the central bank in continuing to strengthen international reserves should help our chances of improving the country’s rating.

Q: How crucial is coordination with the central bank? Can this help to deepen the local financial market?

A: In the past 12 years and more, since we passed the crisis in 2003/04, the financial sector has been instrumental to our economic growth. We have foreign banks such as Citi, Scotiabank and Banesco, and strong local banks such as Popular, BHD Leon and Progreso, all of which have financed private sector growth. On top of this, in the past two years there has been new debt issued [locally, but] we still have to work on strengthening that part of the financial sector to be able to attract foreign investors to peso-denominated bonds issued either by the central bank or the ministry.

It’s a change that we’ve been promoting and we have provided the necessary liquidity to make sure the market deepens. [Lack of liquidity] is one of the reasons international investors haven’t been coming in the numbers that we would have expected and they have already expressed [privately] their interest in buying peso-denominated debt.

We have to organise our yield curve and improve liquidity on those issuances. We’re working on that curve, coordinating with the central bank for that purpose [so that] the central bank [taps] into the short part of the curve and we, at the ministry, go into the medium to long part of the curve. With the strength of the commercial banks and the possibility to expand the local financial market to other investors, beyond the Dominican pension funds, we will be in a very good position to ensure the financial sector can continue to support economic growth.

Q: What is your biggest challenge now?

A: The biggest challenge is to make sure we keep on coordinating fiscal and monetary policies, to make sure the country continues growing. We have to balance the interest and needs of the government to sustain public spending and the commitment we have in education [health] and other public services, such as security – the government has already improved salaries for the police and the military.

Financing public spending with taxes and public debt is a challenge because there are always new needs to sustain, and at the same time you need to sustain fiscal stability. We have to work hard to make sure we collect as much tax as necessary without harming economic activity.

But [there is good news. What I see] from my position is that the public sector counts on talented people with real dedication to working for the government; public servants working not only for the Ministry of Finance but for the wider financial administration of the government, the budgeting office, all the different dependencies of the ministry. You have people very well prepared academically, who really care about doing the best for the country. This is also true of the central bank. I’m very glad to have come to an institution where the technical level is so high.

Order The Banker July edition

FREE trial access to Top 1000 World Banks

Join our community

Top 5 Banks by Country

Data loading...Data loading...

fDi by country

Data loading...Data loading...

​Interview with Santander's executive chairman Ana Patricia Botín - Part 3

The Banker's editor Brian Caplen talks to Ana Botín about buying Popular and Santander's new acquisition style.

The Banker on Twitter

By continuing to use this site you consent to the use of cookies on your device as described in our cookie policy unless you have disabled them. You can change your cookie settings at any time but parts of our site will not function correctly without them.