DOLLARS SCARCE AT OFFICIAL RATE -- BLACK MARKET GROWING

1. (C) Summary: Technical Secretary Carlos Despradel said
he had "no response, but would inform the President" when
emboff conveyed Ambassador's concerns about an emerging
currency black market. In a recent meeting, the GODR
reportedly appealed to traders' sense of patriotism and the
urgent need for an IMF program to elicit agreement from
currency traders to sell dollars at a lower price. Embassy
contacts confirm local press reports that dollars are scarce
at the "official" exchange rate, and at least one paper has
begun to quote the "mercado negro" rate alongside the
official rate. End Summary.

2. (SBU) Since Mejia's December 2 appointment of a
commission headed by police and military officers to enforce
exchange trading regulations and close down illegal
operators, the "official" exchange rate has stabilized at
around RD$35 per USD. Prior to the appointment of the
commission, the peso had been trading above RD$43 (reftel).
However, there are now widespread reports of a shortage of
dollars at the official rate. Exchange houses frequently
remain closed, and banks are limiting the sale of dollars. A
vice president of the country's largest private commercial
bank, Banco Popular, told emboff December 23 that his bank is
even limiting its sale of dollars for payment on
dollar-denominated credit cards (issued by Popular) to the
minimum payment amount. Other contacts, as well as the
press, have confirmed that few if any dollars are available
at the official rate. However, they note that dollars are
readily available "on the street" for about RD$40/1. They
also report incidences of (presumably preferred) customers
purchasing dollars from exchange houses at the official rate,
and then selling them outside at a premium.

3. (C) The owner of a medium-size chain of exchange houses
told emboffs December 19 that Central Bank officials had met
with bankers and foreign exchange traders earlier that week
and told them that an IMF agreement hinged upon maintaining
the currency below RD$40 per dollar. He said that the group
informally agreed to keep the rate below 40, and that the
Association of Foreign Exchange Traders now recommends to its
members the price for dollars. The contact said that the
GODR threatened further audits if the rate slipped and that
the Superintendent of Banks has stationed people inside some
of the exchange houses.

4. (C) Emboff called Technical Secretary Despradel December
22 to inquire about developments in the currency market and
to convey concerns about apparent GODR interference.
Despradel said that he had "no response." He said that as an
economist he agreed that exchange controls would not work,
but added that "no one could govern the country if the rate
went to RD$70 to one." He said that he would raise Embassy's
concerns with the President.

5. (C) In a separate meeting, officials from the Secretariat
of Industry and Commerce reiterated the GODR position that
the government is only trying to prevent illegal speculation
against the peso. They said they would ask the Secretary of
Commerce, who is a member of the Monetary Board, also to
raise concerns about interference in he exchange rate with
the President.

6. (C) Comment: The GODR finds itself in a difficult
position and appears to be trying to "thread the needle." It
wants to maintain fuel import prices and avoid social unrest
that could result from rising costs of basic goods. At the
same time, there probably are people speculating against the
peso, and they likely have more resources to intervene in the
foreign exchange market than the Central Bank does. However,
most observers believe that the weakness of the peso is due
primarily to lack of confidence. End comment.
HERTELL