May 8 (Bloomberg) -- The Dominican Republic said it will free up 20 billion pesos ($487 million) to stimulate growth by lowering reserve requirements and expanding loans to companies and consumers in the Caribbean’s largest economy.
Funds will help boost lending in the productive sector and facilitate expansion of small and medium-sized business, the central bank said in a statement published on its website. Credit will also be used to provide more affordable housing and consumer loans in the $57 billion economy.
Economic growth in the Dominican Republic is forecast to slow to about 3 percent this year from 3.9 in 2012, which was its slowest pace in three years. Other Caribbean economies, such as Jamaica and Grenada, contracted in the fourth quarter of last year as the ratio of debt to gross domestic product in both nations soared to more than 100 percent.
“Economic growth in the first quarter was very, very low,” said Bernardo Fuentes, an economist at Santo Domingo-based consulting firm Economi-K SA, in a phone interview.
The Dominican Republic’s economy slowed last year after growing at an average of 7 percent since 2004. Spending prior to the May presidential elections drove the fiscal deficit to as much as 8 percent of GDP last year, according to the Economy Ministry. A series of tax changes, including a value-added tax increase to 18 percent from 16 percent, went into effect this year to reduce the deficit. The Dominican Republic also sold $1 billion in foreign bonds on April 11 to fund financing gaps.
“I think part of the slowdown is due to less consumption due to the tax reform,” Fuentes said. “Slower economic activity has been a result of less spending, which has been more aggressive than the central bank expected.”
The peso has fallen 2.9 percent against the U.S. dollar this year, compared with a 6.1 percent decline by the Jamaican dollar.
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