Bernardo Vega, the economist, historian and former Dominican ambassador to the United States, takes a look at the three major economic crises that the country has experienced over the past 20 years.
In 1983-84 the government’s accounts at the BanReservas were overdrawn, and because of a lack of liquidity, the Central Bank began supplying the BanReservas with un-backed paper money, called “inorganic” at the time. As a result the Dominican peso suffered a severe devaluation, going from RD$1.50 to the dollar to RD$2.30 to the dollar.
In 1990-91 the Central Bank tried to force the Dominican peso to parity with the dollar, as established in the 1947 Law on Dominican money. Instead of allowing the peso to respond to market forces, the Central Bank caused a major economic crisis that was reflected in long lines at the gasoline stations and a general lack of goods on the shelves, since there were no dollars to be had.
In 2003, in the face of the fraud-riddled bankruptcy of Baninter, the Central Bank, in violation of its own laws, decided to honor all the bank’s depositors, including even those with “offshore” accounts, making no provision for the amount of money on deposit. The resulting hyper inflation that resulted from an exchange rate of 16 to a dollar to 40 to a dollar meant that the middle and poor classes were the ones who paid the highest price, with a reduction of their own life styles, while a handful of millionaires’ – who had received interest rates above the going rates for their accounts in dollars – deposits were returned intact.
Vega asks the reader what these three crises had in common, and his answer will make more than a few people very unhappy: The Central Bank’s lack of autonomy to say “No” to the government.
The economist points out that the country will gain little by maintaining fiscal and monetary discipline and fulfilling the goals set out by the IMF if (1) at the same time institutionalism does not exist in the country; (2) if the country does not have a General Accounting Office that is totally independent from political pressures; (3) if we don’t have a Banking Superintendent’s office whose chiefs are named by the President to satisfy bankers in trouble; (4) if we don’t get budget management that will not allow the President to make use of surpluses as he sees fit, and send money from one ministry to another without previously obtaining congressional approval.
On the other hand, in the Dominican Republic nobody has ever been jailed for cheating the taxman, as occurs in the US or Europe for example. Contraband and under-valuing merchandise for customs duties is not even morally sanctioned in Dominican society.
Vega’s call is that institutionalization must take place. Otherwise, he says, we have learned nothing from these three crises.
For Vega, even more important than fulfilling IMF guidelines is the passing of laws that are outlined in the Letter of Intent. Some of these laws are now in Congress and others are in process, such as the new monetary law programmed for next August, which will grant true autonomy to the Central Bank and the Banking Superintendency.
In the last twenty years, the DR has averaged a serious economic crisis every seven years. In order to avoid another crisis in 2010, Vega says we must become a twenty-first century nation, a nation that is institutionalized, and not dependent on some caudillo who can put pressure on all State officials.