A stronger Dominican peso is helping the government attend its debt service obligations as well as reduce inflation. All of which makes the government happy, but not everybody else, of course. The best deal of the cheaper dollar, or stronger peso, goes to the government, because they need fewer pesos to purchase the dollars needed to pay debts. For September, November and December, the Dominican Republic experienced negative inflation, and in January 2005, inflation was just 0.79%, way below the 9.23% experienced in 2004. The really big slice of the pie came in February, when the government had to pay US$27.12 million to the holders of the sovereign bonds. The government was able to purchase the needed currency at RD$29.90 to the dollar, a far cry from the RD$50.43 paid at the same time the year before. The savings: RD$556 million.
But not all is the color of roses, especially for those who depend on remittances from abroad, the hotel industry and the industrial free zones, where the falling dollar has produced fewer pesos to meet costs that are indexed to a much higher exchange rate. With a high portion of their costs, such as wages, energy and local purchases pegged to a much higher exchange rate, many of the companies have been forced to lay off personnel to stay in business. The government has refused to even consider a higher exchange rate.