Central Bank governor Hector Valdez Albizu has said that the population is not yet feeling the effects of the appreciation of the peso because of the increase in the exchange commission and the ITBIS and luxury taxes. ITBIS (VAT) went up from 12 to 16%, and the exchange tax on imported goods increased from 10 to 13%. Likewise, prices have also been affected by the climbing cost of fuel.
The Central Bank presentation comes on the heels of explaining how with an economy that grew 5.8% in the first half of the year, the population’s general perception is that the economic situation has not improved. Gallup Poll-Hoy recently revealed that 61% of the population is not feeling any improvement, as reported in an analysis in Clave Digital.
Nevertheless, he defended that the purchasing power of the Dominican peso has increased by 26%, and inflation so far this year is negative, with 12 month accumulated inflation at just 1.43%.
In a press conference held at the Presidential Palace he stated that the monetary authorities have met the required gross and net reserves level required by the International Monetary Fund stand-by arrangement for the next two years. He explained this level was RD$200 million, and the reserves are at RD$669.1 million.
Valdez Albizu said that the government would strive to keep the currency stable. He disputed a recent study by the Technical Ministry of the Presidency that said that the peso was overvalued by 26.5% affecting the competitiveness of Dominican exports. He argued that there is a free float of the currency. But he admitted the float has not been left alone.
He disputed arguments from the free zone and tourism sectors that the overvaluation acts like a tax on their business. He pointed to 18 new free zone companies that have applied for permission for installation, and observed that the tourism sector posts a 10% growth rate.
Valdez says that data from the Central Bank show that the country is experiencing a total economic recovery and that one of the government’s most important achievements has been to stabilize the peso. He said the country has gone from a state of crisis to one of economic recovery. The present exchange rate level has enabled the government to meet its international payment obligations. To pay international commitments at a rate of RD$42-US$1 is not the same thing, as to pay at a rate of US$29, he stated. He said that while the IMF had estimated a rate of RD$37-US$1, he expects that by the end of the year the rate would not pass the RD$30-US$1 level. He said that at a rate of RD$42 with petroleum at US$60 the barrel the cost of producing electricity and transport would have skyrocketed. “Then we would truly be having serious problems,” he said.
The Central Bank governor alerted that the quasi-fiscal deficit and the cost of the financial certificates deposited in the bank are major concerns regarding economic stability.
He spoke accompanied by Clarissa de la Rocha, deputy Central Bank governor, and Pedro Silverio, operations director.