Pedro Silverio, former director of the Cenantillas economic think-tank at PUCMM university, and current manager of the Central Bank, discusses the present status of the economy in Thursday’s Hoy newspaper. He focuses on the government’s achievements in improving the economy, and says that there has been recovery in the exchange rate stability and inflation control.
He mentions that in August 2004 12-month accumulated inflation was 51%, compared to March 2005, when the 12-month accumulated inflation was barely 4%. Indeed, between September 2004 and March 2005, accumulated inflation was minus two percent. “There has been a radical change in the behavior of inflation and there are expectations for single digit inflation at the end of the year,” he writes.
He says that the cost of petroleum has limited further economic improvement, rising from US$42 per barrel in August 2004 to US$60 at the present time.” [News reports indicate that the barrel of petroleum is at US$51.] He said this is the reason why fuel prices today are at the same levels as last August, despite the reduction in the exchange rate. He explains that if the exchange rate had not declined, the price of fuel would have been much higher.
Furthermore, he says that in order to make public finances more sustainable, the government increased the ITBIS tax by 33% in October 2004 and extended it to more items. At the same time, taxes on liquor and fuel were increased, and the exchange surcharge went up to 13%. This explains why prices have not dropped in proportion to the exchange rate.
He denied there is a recession in the economy. He said that the economy grew during the last two quarters of 2004, and has grown in a modest manner during the first quarter of the year. He acknowledged, though, that an adjustment program such as that applied [following agreements signed with the IMF] has had a contracting impact on the economy, especially in regards to value added.
He is of opinion that economic policy efforts should focus, as the government has been doing, on economic growth recovery. “This will call for a less conservative fiscal policy but always within the framework established by the agreement with the IMF,” he said.
He is optimistic that foreign investment is coming to the country, especially in the tourism sector.
Commenting on the quasi-fiscal deficit, he said that in 2005 they expect this to decline to 1% in regards to the Gross Domestic Product. He justified that independent of the total of the savings certificates that have been issued, the absolute and relative cost is less, and for this reason their financial sustainability has improved.
He also expects that the quasi-fiscal deficit, by way of a decline in the interest rates, has enabled the Central Bank to concentrate its efforts on designing a strategy to sell property in its care so that the income can be used to redeem part of the stock of certificates.
Silverio went on to say that following a second fiscal reform contemplated in the IMF program to go into effect in 2006, the goal is that the level of certificates be 1% of GDP.
Silverio also highlighted that net international reserves have recovered from US$17 million in August 2004 to more than US$430 million at present. He said that the Central Bank is up to date in its payments after receiving the bank with US$200 million in arrears.
He concluded that the Central Bank does not have exchange bank goals, rather that there be price stability. In his opinion the present rate is a reflection of the macroeconomic reality and expectations that cannot be altered to solve the competitiveness problems of select sectors.
http://www.hoy.com.do/app/article.aspx?id=41475