New foreign exchange council for Dominican Republic

Thursday, December 4, 2003

SANTO DOMINGO, Dominican Republic: The Dominican Republic's embattled peso jumped against the dollar on Wednesday after the Caribbean nation installed a military-dominated council to monitor what it called politically motivated currency speculation.

According to a report by Reuters, President Hipolito Mejia, under fire over a deep economic slump, rising prices, constant power cuts and IMF-backed austerity measures, summoned bankers, foreign exchange traders, exporters and tourism operators to the presidential palace on Tuesday as the peso reached a record 44 to the U.S. dollar.

They were greeted by high-ranking members of the military command and told by Mejia, "For better or for worse, the dollar has to come down."

Government officials said a council had been established to oversee the foreign exchange market. It included Armed Forces Minister Lt. Gen. Jose Miguel Soto Jimenez, Maj. Gen. Pedro de Jesus Candelier of the Army and Maj. Gen. Rafael Guerrero Peralta of the National Police.

Foreign exchange traders said the peso on Wednesday morning had sunk to below 40 per greenback.

Jose Manuel Lopez Valdez, president of the Association of Banks of the Dominican Republic, said participants in the meeting with the president had committed themselves to bringing the dollar down to 30 pesos within two weeks.

But Lopez Valdez dismissed government allegations that speculation was behind the slide in the local currency.

He said uncertainty over a stalled $600 million International Monetary Fund standby loan was the main reason for volatility in the exchange rate.

The Dominican Republic, a booming tourism-dependent economy until it was floored by the collapse earlier this year of major bank Baninter, had agreed on the financial assistance with the IMF in August to help it through the banking crisis.

But the IMF suspended the loan after Mejia bought back shares in two troubled energy distributors from Spanish utility Union Fenosa amid constant power cuts and public outrage that led to riots and a general strike last month.

Negotiations over the loan were continuing this week.

According to a copy of a report published in a local newspaper, IMF experts are recommending a doubling in electricity tariffs over time, and a reduction in subsidies in order to make the ramshackle electricity sector viable.

Political analysts say that would be a tough policy to sell at a time when Mejia faces what opinion polls indicate could be a near-hopeless battle for re-election next year.

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