When at the end of 2020 the prices of articles began to rise, generating a new inflationary wase, the current authorities of the PRM government did not seem to find an explanation.

They didn’t understand why the price of chicken went up. What was the reason for the increase in the price of rice, meat, beans, oil and other basic products of the family basket?

They unsuccessfully sought clarification on this phenomenon that daily affected the well-being of the population. In the end, they seemed to have found it in an alleged practice of speculation or agiotism on the part of the commercial sector.

For this reason, an attempt was to sign agreements between the government and supermarket owners. Programs such as Del Campo al Colmado, the INESPRE Combo and Siembra RD were developed. But prices did not go down. On the contrary, they tended to rise more and more.

They didn’t get out of the bewilderment. It was then that a kind of enlightenment clarified the idea that the fundamental cause of inflation at that time was due to the application of a policy of monetary flexibility implemented by the Central Bank to reactivate the national economy, affected by the severe contraction generated by the Covid-19 pandemic.

An issue of 225 billion pesos was made in March 2020, an unprecedented figure in the national economy. As this is the main cause of inflation, to reduce it, the application of a measure contrary to the one that had generated, in this case, a restrictive monetary policy was required.

In this way, they tried to remove from the market the resources that had been placed through an increase in the Monetary Policy Rate by the Central Bank. With that, it certainly managed to reduce the inflationary pressure, but at the same time a slowdown in economic growth.

The dollar case

Something similar happens with the luck that the exchange rate has run in our country. In his accountability speech on February 27, as well as before the American Chamber of Commerce, President Luis Abinader presents an idyllic picture of the national reality.

The volatility of the exchange rate has led to a devaluation of the Dominican peso. ARCHIVE/LD

In the Dominican Republic, according to the head of state, everything is wonderful. There is no problem. We are the reference of the region and the world. However, in his speeches he could not fail to refer to what is currently one of the main concerns of national life.

We are referring, of course, to the volatility of the exchange rate that has led to a devaluation of the Dominican peso, as had not been seen for 20 years when the banking crisis of 2003-2004 occurred.

When the news began to spread, at the end of last week, that the price of the dollar was being quoted at 63.44 Dominican pesos for each US dollar, panic spread among humble sectors of the population, small entrepreneurs, merchants, national producers, professional groups and large entrepreneurs.

No one was left out of disorientation and perplexity. The concern reached the edge when some economists warned that as projected today, the exchange rate by the end of this year, 2025, could reach RD$70 per dollar.

That was not what the ministries of Economy, Planning and Development, Finance and the Central Bank originally stated. According to his calculations, during this year, the depreciation of the Dominican peso would be 5.5%, which indicates that by December 2025, the devaluation of our currency against the dollar would be 63.11 pesos for each unit of the US currency.

That is why the confusion has spread to all strata of the Dominican family; and it is because in just three months what was planned for the whole year has already been exceeded, when there are still nine months ahead.

There is no crystal ball

The increase in the depreciation of 5.7% in 2024 of the Dominican peso highlights a deviation in the increase in the exchange rate compared to the historical average of 3.5%. That reflects a gap of 2.2% percentages, which is what motivates the growing exchange rate pressures since last year.

That, of course, shows that at the moment, the country is experiencing a dangerous situation of exchange rate instability. With the devaluation of the peso, banks have increased the active rate on their customers’ loans, which increases the financial debt of companies that could be forced into bankruptcy.

Currently, many of the commercial transactions, purchase and rental of real estate, acquisition of motor vehicles, investments in tourist areas and services, in a general sense, are quoted for their value in dollars.

This behavior accentuates exchange rate pressures and raises the risk that, if this trend persists, the exchange rate will continue to move away from the objectives established for the end of the year.

It is therefore required that the authorities take the appropriate measures to stabilise the exchange rate, thus improving the purchasing power of the population.

The Central Bank, which had been accumulating reserves since the pandemic, sold a significant part of them. This is so, to be able to absorb the surplus of liquidity in pesos that the policy he had adopted to reduce his domestic debt was generating.

From a level of 16.2 billion dollars that they had reached in June 2023, the reserves were falling to close at 12.605 million in January of this year. All this is equivalent to saying that, at present, the dollar is unrestrained, reserves decrease, interest rates ruin people and growth collapses.

Faced with such a drama, the governor of the Central Bank, who criticized those he described as “omen birds” that predict the worst about the exchange rate, admitted, however, that he does not know how far it could go, since he does not have a crystal ball.