Most of the weekend?s papers featured articles on the rising cost of a US
dollar, and the Central Bank?s publication of a communiqu? that states that the
election campaign is affecting the exchange markets.
According to Diario Libre newspaper, the Central Bank chided the candidates for
what it called ?imprudent? handling of the economic themes of the campaign. This
situation, according to the bank, has caused ?a profound state of uneasiness in
the financial markets?, resulting in early withdrawals at the Central Bank, and
a run on the dollar to around RD$50-US$1, after two months hovering around the
43 to 1 mark. ?Efforts of the government and Dominican society are threatened by
the imprudent way in which the economic theme is covered in the political
campaign and continuing warnings made by some spokesman for parties
participating in the race regarding future freezing of certificates or
unilateral reduction of the interest rates that is paid by the Central Bank,?
states the communiqu?.
At the center of debate is the converting into a campaign issue what Leonel
Fernandez could do if elected President regarding the RD$75 billion in
certificates of deposit at the Central Bank. The Mejia campaign ran a spot on TV
and radio alerting that deposits at the Central Bank were endangered by a vote
for Leonel Fernandez, after the latter has stated that the high interest rates
paid on the deposits are unsustainable for the Dominican economy. The PRD
turning the matter into a campaign spot and weak point against the Fernandez
candidacy seems to have boomeranged and diminished local confidence even further
and led to cashing in of the certificates before their expiration, and these
pesos in turn pressuring the market as they are converted into US currency, just
days before the election.
As the Central Bank publication ran on Saturday in the local press, Hoy
newspaper concurrently published statements by Jaime Aristy Escuder, of the
Fundacion Economia y Desarrollo, who alerted speaking from the PRD campaign
headquarters that if Leonel Fernandez is elected, he could lead the country to a
?corralito? situation similar to that in Argentina. Aristy blamed Fernandez for
the new slide in the peso. The economist said the only way to confront the
situation of the quasi-fiscal deficit is to reduce the high interest rates the
Central Bank is paying on the deposits. Both Aristy and the president of the
Fundacion Economia y Desarrollo, presidential economic advisor Andy Dauhajre,
have taken a visible stance recently to defend the government of President
Hip?lito Mej?a, asserting that he is the best option to manage the present
economic crisis.
President Leonel Fernandez addressed the quasi-fiscal debt issue on Friday, on
the Uno + Uno televised interview in reference to the depreciation of the peso.
He said that the present government has issued RD$110 billion in money not
backed by reserves, and has removed RD$75 billion in the form of certificates of
deposit at the Central Bank. He explained that the 50% interest being paid on
several of the more recent deposits is ?too attractive,? and has resulted in
depositors removing their money from commercial banks [that pay 16-30% interest
rates] to be deposited in the Central Bank. ?If everyone takes their money from
commercial banks to the Central Bank, the banks will collapse, and if banking
collapses, the Dominican economy will collapse,? he said. He said to confront
this situation, his government would sell assets of the Central Bank, the
central government, and perform fiscal adjustments to reduce the quasi-fiscal
deficit. ?Only this way would we be able to generate confidence to resolve the
problem, and the US$3 billion that has fled will return to the country, as will
foreign investment and as a country we will again be able to attract savings,?
said Fernandez. He explained that if Dominican banks paid 4% on savings in
dollars, flown capital would return because it earns more here. According to
Fernandez, this capital is not coming in because there is a lack of confidence.