The Central Bank of the Dominican Republic (CB) has announced an ambitious plan to reduce the quasi-fiscal deficit that was produced by extremely high interest rates and bank bail-outs in 2003. The aim of the new programs will be to reduce the deficit by RD$16.3 billion in 2005 by applying the first of four steps that were approved by the Monetary Board at their last meeting. According to the Listin Diario, the Monetary Board wants to change the way that investment certificates are placed in the Central Bank, by extending the time periods and by offering slightly higher rates of interest. Designed to offset the losses suffered by the CB by guaranteeing the deposits of three distressed banks in 2003, the plan looks to lower the deficit that currently stands at 3.6% of the GDP to just 1.5% of the GDP by next year’s end. CB Governor Hector Valdez Albizu told the press that those with dollars deposited outside of the country can bring them back to the DR, exchange them at the current rate, deposit them to the Central Bank and enjoy an interest rate that will be adjusted to the monthly rate in use by the financial system and set at three points higher. These rates will be accorded for a minimum of 18 months and a maximum of five years. Other steps in the process will include the creation of a contingency fund and another fund created from the confiscated assets of the collapsed banking institutions. Recently, the CB has managed to place deposits certificates at interest rates of 33.65% APR, a significantly lower rate than the 61% that broke an all-time historic high and the lofty rates that ranged in the 50s just a few months ago.
Central Bank Governor Valdez Albizu also forecast the economy would grow this year by 1%.