Identifier
Created
Classification
Origin
03SANTODOMINGO7134
2003-12-09 10:59:00
CONFIDENTIAL//NOFORN
Embassy Santo Domingo
Cable title:  

DOMINICAN PESO STEADY ONE WEEK AFTER PRESIDENT

Tags:  EFIN ECON ECIN DR 
pdf how-to read a cable
This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 02 SANTO DOMINGO 007134 

SIPDIS

SENSITIVE

DEPARTMENT FOR WHA/CAR AND EB/IFD; PLEASE PASS TO USTR
SCRONIN AND AID/LAC. TREASURY FOR OASIA/RTOLOUI; NSC FOR
HCRUZ; COMMERCE FOR VDEES.

E.O. 12958: DECL: 12/05/2005
TAGS: EFIN ECON ECIN DR
SUBJECT: DOMINICAN PESO STEADY ONE WEEK AFTER PRESIDENT
TAKES STEPS TO KEEP EXCHANGE HOUSES IN LINE

REF: SANTO DOMINGO 6999

Classified By: EcoPol Counselor Michael Meigs. Reason: 1.5(b) and (d).

C O N F I D E N T I A L SECTION 01 OF 02 SANTO DOMINGO 007134

SIPDIS

SENSITIVE

DEPARTMENT FOR WHA/CAR AND EB/IFD; PLEASE PASS TO USTR
SCRONIN AND AID/LAC. TREASURY FOR OASIA/RTOLOUI; NSC FOR
HCRUZ; COMMERCE FOR VDEES.

E.O. 12958: DECL: 12/05/2005
TAGS: EFIN ECON ECIN DR
SUBJECT: DOMINICAN PESO STEADY ONE WEEK AFTER PRESIDENT
TAKES STEPS TO KEEP EXCHANGE HOUSES IN LINE

REF: SANTO DOMINGO 6999

Classified By: EcoPol Counselor Michael Meigs. Reason: 1.5(b) and (d).


1. (SBU) Summary: The Dominican Peso (RD) continues to hold
steady against the dollar one week after President Mejia
talked it down while appointing a commission headed by
military and police to counter alleged irregularities in
trading(reftel). Foreign exchange houses and banks were
buying dollars for between RD37.50 and RD38.60 in light
trading December 8, and the spread between "buy" and "sell"
had narrowed from 300-400 basis points prior to the
President's action to between 30 and 200 basis points.
Although companies report that dollars are readily available,
there still seems to be uncertainty in the market. The IMF
has expressed concern over the latest steps by the GODR. End
summary.

--------------
President Hanging Tough
--------------


2. (SBU) Weekend press reported that Mejia has given
exchange houses five days to account for all of their
currency trades over the past 11 months. Mejia also
reiterated over the weekend that the peso should be valued at
RD30 per dollar. The GODR is reportedly establishing
communication links between the tax authorities and Customs
to strengthen control of foreign exchange and to stem tax
evasion. Embassy has not seen or heard any evidence,
however, of military or police or other GODR authorities
interfering or intimidating people exchanging money.



3. (C) Armed Forces Secretary LTG Soto Jimenez told DCM and
DATT on December 8 that military involvement in the
President's campaign was limited to intelligence efforts to
identify unlicensed exchange houses and irregular currency
exchange practices, plus some technical involvement in
auditing firms. He says that tomorrow's press will carry a
list of all firms authorized to deal in foreign exchange for
the public.

--------------
Banks Remain Calm
--------------


4. (SBU) Officials from two major Dominican banks and others
from the only two foreign banks operating here remain
seemingly unconcerned about what many have described as
heavy-handed tactics by Mejia. Each affirmed that his bank
does not take positions in dollars except to cover capital
requirements and immediate financing needs, so they are
relatively indifferent to the actual peso/dollar exchange
rate. Bankers who attended last week's meeting with the
President told similar stories. They said that there is
somehow a perception that the dollar should be trading for
around RD30, and exchange traders in the meeting told the
President this was an achievable goal. One banker theorized
that there had been hoarding of dollars, but following the
President's appointment of a commission, people are again
selling dollars for fear the peso may actually continue to
appreciate.

--------------
The IMF Still Concerned
--------------


5. (SBU) The IMF team currently in country negotiating a
new standby agreement has achieved some progress on issues
such as tightening monetary policy and narrowing the fiscal
deficit. The IMF resrep said that Mejia's repeated
pronouncements that the peso should trade at RD30 appeared to
be in violation of the general obligations of IMF members
(Article VII of the IMF Articles of Agreement). He commented
that this might delay an agreement.

--------------
Comment
--------------


6. (SBU) There are several possible reasons for the peso's
recent appreciation: First, Mejia's effort came concurrent
with the seasonal influx of dollars from holiday remittances
and the high tourism season. Second, some are dumping dollars
out of concern that the rate could be forced lower. However,
the depreciation over the past year was largely attributable
to dramatic increase in the money supply and a decrease in
confidence. Those underlying causes remain. Central Bank
certificates continue to turn over at high interest rates,
and few interlocutors believe the GODR can force the exchange
rate down for very long. Moreover, if the GODR fails to
reach agreement with the Fund or fails to meet its pending
financial obligations, the peso strengthening of the past
week could reverse rapidly.

KUBISKE