Leading economist Pedro Silverio writes in today’s El Caribe that the past few years have seen an incredible outflow of hard currency. He estimates that between 2001 and 2003 the currency drain reached US$3.5 billion, a total that far surpassed the amount of remittances sent in to the Dominican Republic from abroad. Capital outflow, according to Silverio, is a form of speculation performed by economic players faced with uncertainty generated by the government’s economic policies. These speculators wagered that things would go south, as indeed they did, explains Silverio. The blame, according to the economist, rests squarely on the shoulders of the government, which admitted to its loss of credibility in the Letter of Intent addressed to the IMF last month. This acknowledgement was reaffirmed by the Central Bank’s governor in a “fit of sincerity.” Because of this, the lack of confidence is not a mere invention of those awaiting a change of government in the next elections. The lack of confidence has very precise numbers in the size of the outflow of capital, while officials limit their view to the flow of hard currencies that have increased and ignore the additional demand for dollars that signals a lack of faith in the present administration. Silverio goes on to say that as a substitute for confidence the monetary authorities have tried to use interest rates to attract a positive influx of peso currency. That is why the Central Bank is paying nearly 40% in interest rates for savings certificates that were issued to rescue the troubled banking system and more than 50% for zero-coupon certificates. The head of Cenantillas at the Pontificia Universidad Catolica Madre y Maestra (PUCMM) says that this will bring on a quasi-fiscal deficit above what had been planned for in 2004 and the unavoidable use of debased currency to cover it. Silverio feels that while this might work if it brings stability in the exchange rate, most likely it will only make the situation worse. He concludes that high interest rates are no substitute for the lost confidence.