Months of the implementing of a conservative monetary policy to discourage an increase in imports, that would bring an abrupt decline in the value of the peso, are showing in the stable peso-dollar relation, but also in the decline or stagnation of sales of goods and services made by Dominican consumers. It now seems time for the Central Bank to do a reverse act. Monetary policy led interest rates to stay high, in order to discourage imports, but now it is imminent that the country will receive major injections of US dollars, and the Central Bank needs to act to avoid a reverse run on the dollar. An abrupt increase in the number of dollars the peso can buy would affect the tourism and free zone industries, the leading generators of hard currency. In preparation, the Central Bank is not selling bonds to the banks that have an estimated RD$3,000 million (about US$187 million) in excess liquidity. This is forcing interest rates down from a prime rate of 26% about a month ago, to the present 19-21% today. This rate is expected to further decline to 18% soon. At that rate, it is expected that companies will be able to massively start borrowing again. Banks are taking in savings at 14-15% rates. The Central Bank is also very aware of the US$111 million World Bank emergency assistance loan that Congress finally passed. Of these moneys US$40 million are expected to enter this month. The moneys will be used to build housing, roads, schools and bridges in areas severely harmed by Hurricane Georges last September 1998. This US$111 million loan is just one of a total US$400 million in assistance that will be injected into the economy. Coinciding with this influx of hard currency is the start of the privatization efforts on behalf of major foreign companies that have won bids to capitalize state enterprises. These companies, such as those dealing with the nation’s leading airports and the Dominican Electricity Corporation, will be injecting millions into the economy as they implement their work plans. It is expected that the decline in the cost of the dollar and in the cost of bank funds will stimulate the economy.
