Economist Roberto Despradel in today?s El Caribe?s economic section reviews the events that led up to the current crisis in the exchange rate and the creation of a ?herd? mentality. During the past few months, and even more so over the last few days, the exchange rate has accelerated at a pace that does not reflect the real values of the peso or the dollar. Despradel says that in a world market, capital flows freely and markets tend to over-react in the short term, which is what happened with the peso. In less than six months the worth of a US dollar in pesos went from RD$22 to RD$38, pushed by a stampede of the ?herd mentality?. What is strange is that it happened at a time when the Dominican Republic was recovering from the external situations that had affected the main producers of hard currency. Despradel goes on to cite the elevated oil prices (US$425 million more) and the drop in tourism as after-effects of 9-11, and the drop in exports form the industrial free zones as a result of the general malaise in the world economy. These factors, if correctly identified, would have called for cautious economic policies. In 2002, however, the Dominican economy grew by 4%, accounting for the second highest such growth in Latin America, and the largest among non-oil producing countries. The sovereign bonds of 2001 and the private-sector borrowing both contributed to heat up the economy. The mid-term elections also aided the country in weathering the major external blows to the economy without the general population feeling a thing. Neither the government nor the private sector expressed any lack of confidence in the future, the exchange rate was stable and the country grew. Tourism, however, was off, and orders in the free zones were falling. The economist says that when you go against the current and postpone needed adjustments, the results can be very expensive. The impact of the external factors hit the internal financial market the hardest, and when the exchange rate began to rise and nervousness set in on the ?herd?, one bank that had offered very high interest rates became very vulnerable when the ?herd? wanted to exchange pesos for dollars. If the external blows cost the Dominican Republic US$2.6 billion dollars, the Baninter hole has cost another US$1.6 billion, he says.
Roberto Despradel is the son of Carlos Despradel, who as Technical Secretary of the Presidency is negotiating the IMF agreement along with Central Bank Governor Malkum.