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Instituto Tecnológico de Santo Domingo

INTEC economists draw attention to "unusual" increase in the dollar rate

In presenting the four INTEC Report, Analysis of the Dominican Economy, they warned that, if interest rates rise as a result of the rise in the US currency, there would be negative effects on investment and the economy would be constrained.

INTEC economists draw attention to "unusual" increase in the dollar rate

SANTO DOMINGO. The School of Economics of the Technological Institute of Santo Domingo (INTEC) observed with concern el increase "Unusual" from Dollar exchange rater during the first quarter of this year, that in January era RD $ 48.20 per dollar and to this day is RD $ 49.40 per dollar, for an increase of one 2.2%, which could obligate al central bank to increase interest rates from monetary politics o intervene el exchange market with the accumulated reserves for the placement of bonds that the Government made at the beginning of the 2018.

In the presentation of fourth report INTEC Analysis of the Dominican Economy, economists at the university said that, An increment in the interest rates, which would presumably have to be carried out by the Central Bank in the short term, would have Negative effects in the investment, would constrain the economy by way of consumption and investment, causing more slow growth of the Gross Domestic Product (GDP) for the rest of the year.

They indicated that the current movement of the exchange rate contrasts with the behavior registered in recent years. "In 2017, the annualized increase was 3.3% and from 2007 the annual average was 3.42%. If the trend observed in the current year continues, the annual increase will be higher than the 5.5% achieved in 2013.

The professionals argued that these elements would put in riesgo the projections de crecimiento of 5.5% of GDP, made last December for the preparation of the public sector budget. "This could lead to a GDP growth rate close to 5% by the end of December this year," they argued during the press conference.

In addition, they warned that, rise in the quotation from american currencye in the market, accompanied by escasez in the offer by the change's agents, worries al business sector and generates expectations en investors and in small and medium-sized savers, which provoke more pressure in the demand, given the interest of obtaining returns on dollarized investments against relatively low passive interest rates in commercial banks.

Consequences of the rise of the dollar

For the economists of that university, the rise in the exchange rate has been accompanied by a increase at price . Petroleum internationally, which has caused in turn successive increases at price of the fuels.

"The combination of increases in the exchange rate and fuel prices has an effect on the price level of the economy In the most recent Survey on Macroeconomic Expectations, conducted by the Central Bank, the group of national and foreign analysts consulted places the projected inflation rate for 2018 at 4.16%, while the International Monetary Fund projects a rate of 4.4%, which, although it remains within the projected range of the monetary program aimed at inflationary targets, shows an evident upward trend that expresses the vulnerabilities of the Dominican economy.

IMF confirms INTEC forecasts

In another order, the analysis document highlights that the International Monetary Fund (IMF) confirmed, in its report presented in February, the concerns from INTEC School of Economics, in the sense of unsustainability from debt in the medium term if they are not tax reforms "Significant".

Roxana Brady interim dean of the Economics and Business Area of ​​INTEC and Rafael Espinal

In this report, the IMF reiterates its recommendations to increase taxes and cut spending to face the fiscal pressures of the cost of public debt. "The Monetary Fund obviates that the indebtedness race in our economy and in other nations accelerates after the international financial crisis of 2008, in a rupture of the traditional orthodox policies of this multilateral organization," the document states.

It specifies that, considering that the consolidated official debt at the close of 2017 represented 51.5% of GDP, the IMF practically calls for a "fiscal reform" that broadens the tax base and modifies the exemptions to correct the fiscal deficit and the burden that represents the debt service on government income. "At the close of 2018, this debt will exceed 53% of GDP, with a projection of 56.7% of GDP towards 2023, according to the multilateral organization itself."

Finally, they indicated that for INTEC's School of Economics it is very worrisome that, given the fiscal vulnerabilities, the sustainability of the debt and economic growth, the weaknesses of the labor market, productive structure based on informality and microenterprises, a new crisis cause incalculable sacrifices in the quality of life social stability and politics of Dominican society.

To read the full report, click here.

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