Leading economist Pedro Silverio unleashes a salvo against the thinking of the Central Bank officials and their attempts to control the exchange markets. Silverio comments that the surge of the informal exchange market in December came as a “surprise” only to the government, as it was obvious to all the other players that military intimidation would only stimulate its creation and operation in such a sensitive marketplace. Official exchange transactions had dropped 25% below average December level transactions, alerting that activity was being performed under the table. Something was needed to completely transform the exchange flows and repair the mistakes made by President Mejia and to disavow his plan to intervene in the exchange market, said Silverio. Yesterday’s communique from the Central Bank leaves no doubts when it says “that the functions of regulating and supervising the exchange market belong exclusively to the monetary authorities.” Silverio therefore asks, “If this is so, then why didn’t the Central Bank advise the President that his intervention plan was contrary to the Monetary and Financial Law?” Therefore, the monetary authorities sinned by omission. According to the lead economist of the Cenantillas economic think-tank of the Pontificia Universidad Catolica Madre y Maestra, the Central Bank statement was intended for a single audience – the IMF – as a sort of public “mea culpa” by the authorities. The Central Bank also happens to find guilty parties in other, non-governmental areas, and blames the exporters and other hard currency producers. In accusing them of selling their dollars in the informal market, the first thing the government is admitting is its failure to control the market, writes Silverio. This failure created the favorable conditions for the creation of the informal market, since nobody expected market suppliers to sell their dollars at an artificially low price. “At least, not if we are not talking about a race of fools between the government and the exporters,” says Silverio. He goes on to explain that, on the other hand, if the exporters and other hard currency producers were to sell their dollars on the informal market, the effect on the exchange rate would be almost nil because while there would be less foreign exchange available for the formal market, the demand would also be less because it would be supplied by the informal market. The problem is that the illegal market has to operate at a higher rate than its legitimate counterpart because of risks and possible penalties. Silverio seals his argument by asking the Central Bank to look at its own statistics to see what the problem really is. From October to December the Central Bank increased internal financing by RD$18.75 billion and M1 (money in circulation) was increased by RD$20 billion. With such an expansive monetary policy, the exchange rate cannot behave as the government would wish. The institutional weaknesses in the exchange market have always been there, Silvierio highlights. “What is happening now is that the government policies are making matters worst, rather then helping them,” he concludes.