The peso has fallen to levels of over RD$26 to the US$1, inflation is rising, and as a result every day fewer and fewer citizens actually trust that the government knows what it is doing.
Nevertheless, Carlos Despradel, as economic advisor to President Mejia and member of the Monetary Board, feels that the new measures could still produce the desired effects of halting the declining value of the peso. ?People have to get the idea out of their heads that saving in dollars makes sense because saving in dollars pays only 2 percent, if that much, and here they can get yields of 28 or 30 percent,? he argued on the ?Una Vez por Semana? TV program, shown on the state television network, Channel 4. He admitted there is a problem of eroded confidence, but insisted that the measures recently announced hope to break what he says is a vicious circle. He explained that the measures seek to deter the loss of value of the peso. ?What these instruments that we may need to apply cost does not matter,? said the former governor of the Central Bank. ?The cost of the instruments does not matter because we cannot allow the value of the peso to continue to drop,? he said. His formula to solve the problem is to reduce imports by making money more expensive, while at the same time making savings in pesos more attractive.
?People have to understand that the Monetary Board wants to withdraw money from of circulation so that there is less buying power, less sales, because we want to cut the growth of the imports,? he said. ?We have to remove the expectation that by holding dollars today, you will have earned more tomorrow.?
Speaking on the same program last night, President Hipolito Mejia said: ?The measures we have taken were devised precisely to create an impact, so that people know they do not have to buy dollars and they do not have to purchase the merchandise, which is what they are doing now.? He accepted that the measures are affecting his popularity. ?But I cannot postpone these decisions, I have to assume the responsibility, even if my popularity drops 20 or 15 points ? that is not my problem,? he said.
Other economists disagree with Despradel and ask where the money will come from for the government to pay depositors the high 28- to 60-percent interest rates announced as part of the recent Monetary Board decisions.