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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 Instituto Tecnológico de Santo Domingo (INTEC) observed with concern el increase "Unusual" of dollar exchange rater during the first quarter of this year, that in January era RD $ 48.20 per dollar and today it is RD $ 49.40 per dollar, for an increase of one 2.2%, which could obligate al central bank to increase tasas de interés of monetary politics o intervene el exchange market with the reserves accumulated by the placement of bonds that the Government made at the beginning of 2018.

In presenting the fourth report INTEC Analysis of the Dominican Economy, economists at the university said that, An increment in the tasas de interés, which is presumed to be carried out by the Central Bank in the short term, would have Negative effects in the investment, would constrain the economy through consumption and investment, causing a 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 recorded in recent years. “In 2017, the annualized increase was 3.3% and since 2007 the annual average has been 3.42%. If the trend observed in this year continues, the annual increase will be higher than the 5.5% reached in 2013.

Professionals argued that these elements would put riesgo the projections de crecimiento 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 of american currencye on 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 savers, which cause a increased pressure in the demand, given the interest in obtaining returns on dollarized investments against relatively low interest rates in commercial banks.

Consequences of the rise in the dollar

For the economists of that university, the rise in the exchange rate has been accompanied by a increase at price of oil 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 effects on the price level of the economy. In the most recent Survey on Macroeconomic Expectations, carried out 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 inflation 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 of INTEC School of Economics, in the sense of unsustainability of debt in the medium term if they are not carried out tax reforms "Significant".

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

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

It specifies that, considering that the consolidated official debt at the end 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 the tax represents. debt service on government revenue. "At the end of 2018, this debt will exceed 53% of GDP, with a projection of 56.7% of GDP by 2023, according to the multilateral body itself."

Finally, they indicated that for the INTEC School of Economics it is very worrying that, given the fiscal vulnerabilities, debt sustainability 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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