US embassy cable - 03SANTODOMINGO7570

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