Economists convened by the National Young Entrepreneurs? Association (ANJE) for a workshop to gather recommendations to solve the dilemma of the quasi-fiscal debt concluded yesterday that if measures to restrain the issuance of Central Bank savings certificates are not enacted, the quasi-fiscal debt could surpass RD$120 billion by December 2004. Diario Libre reports that the quasi-fiscal debt needs to be the top priority to avoid a national economic collapse. The economists estimated that in interest payments alone on those certificates already issued, the government will have to pay around RD$37 billion this year. The advisor to the Central Bank?s governor, Jose Luis Suarez, said that the interest rate levels are at an average 45%, taking into account the millions that have been contracted at rates of more than 60% a year. Economist Jose Luis de Ramon said that commercial banks have survived so far, despite the external impacts, capital flight and banking crisis. He pointed out that deposits to commercial banks have risen to RD$230 billion, despite the higher rates paid by the Central Bank. He said that commercial banks have kept their clientele due to people?s general lack of confidence in the Central Bank certificates.
The president of the Association of Commercial Banks Jose Manuel Lopez said that if not for the ?risk premium?, all savings would have been transferred to the Central Bank. He explained how commercial banks pay out approximately 23% in interest annually, versus the 59% offered by the Central Bank, and estimated that regardless commercial banks have retained 90% of their deposits since the Central Bank began offering the higher-than-market rates to lure deposits and contain inflation. Interestingly, a large portion of the deposits secured by commercial banks are subsequently deposited to the Central Bank at the higher rates.
Economist de Ramon stated that deposits at the Central Bank make up 116% of the money in circulation. ?The amount is brutal,? he said, adding that by December the CB funds could account for 147% of the money in circulation.
Proposals to alleviate the pressure of the quasi-fiscal deficit include the sale of government assets, the sale of assets of collapsed banks, long-term international financing, a moratorium on the tender of certificates, the dollarization of the certificates, replacing the certificates with bonds indexed to the US dollar, an increase in the legal reserve exchange of the banks and the gradual reduction of interest paid on Central Bank certificates of deposit, among other measures.
As reported in El Caribe, as of 18 June savings certificates in the Central Bank accounted for RD$86 billion ? RD$26 billion more than in December 2003, with a due yield of RD$40 million.
The quasi-fiscal debt of the Central Bank was 0.3% of the Gross Domestic Product in 2002. This year it increased to 3.5% of the GDP.