INTEC economist highlights conflict Russia and Ukraine presses the increase in fuel and electricity
SANTO DOMINGO. -Assessing the impact of the Russian-Ukrainian conflict on the Dominican economy is a dynamic exercise, which largely depends on whether the event turns out to be short-lived and does not substantially alter the geopolitical and economic scenario, or if, on the contrary, it becomes a "turning point" in relations between the West and Russia, after the fall of the Berlin Wall.
This was understood by the economist Magdalena Lizardo, coordinator of the Dominican Observatory of International Trade of INTEC (ODCI), who in a document sent to the press highlighted that, since the outbreak of the conflict, world markets have witnessed sharp rises in prices international commodities and gold, as a result of the interruption of the flow of trade between Russia and Ukraine with the rest of the world.
The economist commented that these two countries are important suppliers of energy, food and fertilizers. In less than three weeks, the prices of nickel, coal, oil, wheat, corn and natural gas have risen between 67% and 8.3%, exacerbating upward pressures on commodity prices already on the rise. they had been feeling since 2021.
“For the Dominican Republic, the increase in the prices of oil, natural gas and coal translates into pressure to increase the internal prices of fuels and electricity.. In 2021, 31% of the energy produced in our country came from the use of coal, 40.6% from natural gas and 11.6% from fuel oil. As oil derivatives are key inputs in all production processes, an increase in their prices triggers price increases in almost all goods and services produced in the country”.
Lizardo said that the Dominican government has chosen not to transfer all the increases in external prices to the internal prices that consumers and companies pay for the most important basic products. However, the subsidies translate into higher public spending, which has often had to be financed with public debt.
“In addition to the increase in the prices of basic products, the war between Russia and Ukraine also affects the flow of tourists and the trade of goods between the Dominican Republic and those two countries,” he pointed out, while noting that last year 269,612 Russian and Ukrainian tourists visited the country, which represented 5.4% of the total number of non-resident visitors in that year. In the first two months of 2022, the percentage rose to 11.8%. The closure of the air spaces and the war situation cut off this flow of visitors.
In addition, in 2021, 85% of imports of barley malt and other cereals, 29% of imports of unwrought aluminum, 18.8% of imports of iron or non-alloy steel rod and 15% of imports came from Russia. of mineral fertilizers. At the same time, 60.8% of imports of intermediate iron or non-alloy steel products and 29.7% of iron or non-alloy steel wire rods came from Ukraine. This implies that for the metallurgical industry that supplies inputs for construction, as well as the beer and fertilizer production industries, it will be necessary to seek other sources of supply as long as the conflict lasts.
On the potential effects, The specialist emphasized that the economic difficulties generated by the armed conflict, both in Russia and in Ukraine, increase the probability of non-payment of sovereign and private debts in both countries.. Consequently, access to international capital markets may become more expensive for emerging countries, including the Dominican Republic, if investors decide to take refuge in markets with less risk.