Economist Vicente Bengoa, who President-elect Leonel Fernandez announced would become his Finance Minister on 16 August, is warning against purchasing the hundreds of vehicular tax exemptions issued by the Mejia administration in its final days. He said he would emulate the actions of Joaquin Balaguer in 1986, who refused to honor the import tax exemptions on vehicles that former President Salvador Jorge Blanco of the PRD had issued before his administration left office. ?I am warning people who have bought one to get their money back because they are going to have problems,? he said.
Bengoa, a former Banking Superintendent during Fernandez?s first administration, told the Listin Diario that the economic team of the incoming PLD government has been meeting with the technicians of the International Monetary Fund (IMF) to finalize the contents of a new letter of intent. The new economic team, whose members were announced last week by President-elect Fernandez, has been modifying and correcting aspects of the letter of intent that were violated by the Mejia government, explained Bengoa. He told the Listin?s Candida Acosta that the present government spent beyond what had been budgeted for investments in the first six months of the year.
Bengoa says that the current situation is fragile, particularly because the IMF failed to condition the disbursements made to the Mejia government on the ratification of the fiscal reform in March 2004. The Mejia government holds the majority in Congress. Bengoa explained that an additional RD$22 billion is needed to balance the coffers, while the savings to be gained on the spending side will be announced by Fernandez on 16 August.
Bengoa says the most fundamental problem the Fernandez government must face is the electricity crisis, followed in second place by the Central Bank?s quasi-fiscal deficit, which he estimates to be RD$90 billion as of 29 July. He says that RD$30 billion is due this year in interest payments on the CB?s certificates of deposit, which could potentially create a snowball effect because it generates high yields without any type of investment or payment of taxes. He commented that an investment of RD$100 million yields RD$50 million in profits in one year ?without anyone having been employed, without blackouts, without any problems.? He said this turns Dominicans into market speculators. According to Bengoa, those who most want to see the quasi-fiscal debt resolved are the bankers. Commercial banks are said to hold 70-90% of the certificates of deposit issued by the Central Bank.
Bengoa divulged that there is the intent to consolidate different government economic departments and shuffle responsibilities. He mentioned that the management of the foreign debt would be handled by the Finance Ministry, not by the Central Bank. He says there is a bill to this end in Congress.
Bengoa described the situation of having Central Bank Governor Jose Lois Malkun tied up with judicial citations as ?a mess,? because he is responsible for the economy. Bengoa mentioned that as of March of this year, the government had redeemed RD$7 billion on the certificates held by Baninter, one of the three banks that collapsed last year. He said that in the first 15 days of July, the government redeemed RD$3 billion, including RD$505 million held by offshore entities under conditions that were overly-generous to the depositors. ?If you pay certificates in dollars at 14%, for which you are getting paid interest rates of 14%, and place them on auction to then pay 50% or 55%, what is that?? questioned Bengoa. He said these should have been paid with money derived from the sale of bank assets so as not to affect the economy.