DOLLARS SCARCE AT OFFICIAL RATE -- BLACK MARKET GROWING

C O N F I D E N T I A L SANTO DOMINGO 007570



SIPDIS



DEPARTMENT FOR WHA/CAR AND EB/IFD; PLEASE PASS TO

USTR/RVARGO; TREASURY FOR OASIA/NLEE; NSC FOR HCRUZ



E.O. 12958: DECL: 12/23/2013

TAGS: EFIN, ECON, ECIN, DR

SUBJECT: DOLLARS SCARCE AT OFFICIAL RATE -- BLACK MARKET

GROWING



REF: SANTO DOMINGO 7134



Classified By: Acting EcoPolCouns Thomas C. Pierce; reason: 1.5(b & d)



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