Central Bank Governor Jose Lois Malkun, in an interview with El Caribe published on Saturday, said that a major tax reform is due to be presented this March, to comply with income levels that have been stipulated in the standby arrangement with the International Monetary Fund (IMF). The tax reform will also serve to compensate for the lesser customs revenues after the signing of the Free Trade Agreement with the United States, expected to go into effect this year. Furthermore, the government foresees the elimination of the transitory 2% tax on imports and 5% on exports, and subsidies to power and propane gas. Lois Malkun also told the newspaper that a major wage increase is imminent to compensate locals for the loss of purchasing power as a consequence of the estimated 56% inflation rate for this year and last. For 2004, the private sector has allotted a 25% increase, while government employees received a 9% adjustment.
Lois Malkun said that the Central Bank hopes to recover RD$12-15 billion of the portfolio of the collapsed Bancredito, Mercantil and Baninter institutions. He said these resources will be used to pay investors who are cashing out their certificates of investment from the bank. He said that they expect to recover RD$6 billion from the portfolios of Bancredito and Mercantil alone. With regards to Baninter, he said that through the sale of assets to Scotiabank RD$3 billion had been recovered. He said they hope to recover RD$10 billion from bank properties this year, in addition to the sale of the Lope de Vega building that he estimated held a US$45- to US$50-million price tag. The Central Bank governor admitted that the speed of the sale of the properties would depend on the legal proceedings currently underway.
Lois Malkun also spoke of the renegotiation of the debt with the member countries of the Paris Club (Germany, US, Canada, France, Spain, Japan and Italy), and said they hope to be able to postpone a payment of US$350-US$400 million that was due this year. He said furthermore that only debt that falls due in 2004 would be negotiated. He announced the Central Bank expects to be able to formalize the Letter of Intent with the IMF agreement by 12 February and on that same date the World Bank would discuss a bridge loan for US$100 million for the government to meet its commitments to the power sector. Approval is pending on a US$200-million loan. Furthermore, he said that in March, the Interamerican Development Bank (IDB) should discuss a US$100-million loan to back financial reform. According to Lois Malkun, the IDB is considering a further US$100-million loan for the first quarter of the year.
Lois Malkun confirmed that the International Monetary Fund had accepted to use a RD$40-US$1 exchange rate for the standby agreement’s conversion. While the real exchange rate is beyond the RD$40 mark, there would not be equilibrium in the economy, said Lois Malkun, as this generates problems that have a strong impact on government finances. He explained that the higher exchange rate renders the adjustment of the prices of electricity and propane gas to be the only solution, but he explained that the IMF understands that an adjustment of these prices today would merely generate more inflation. He announced that the IMF would arrive in April for its first revision of the agreement. And while recognizing the existence of a confidence crisis and generalized perception of the authorities’ dubious credibility, Malkun said the government has to live with this and trusts that confidence will return as the results of the measures being taken become tangible in the coming months.