Pedro Silverio, the director of the influential Centro Económico de las Antillas (Cenantillas) argues that the investment certificates will mean that any deal with the IMF is now highly unlikely. He said that it changes the country's economy and fiscal outlook fundamentally.
IMF. The government claimed that it had landed US$1bn in a standby loan to deal with the problems caused by the collapse of Banco Intercontinental. This was one of the local service companies to have risen in the boom decade of the 1990s. Owned and controlled by the well-connected Ramón Báez, BanInter was only set up in 1986. By the time of its crash in May, it was the country's third- biggest bank.
Báez used the bank to back a business and media empire. BanInter spent US$100,00 a day on advertising alone (making it the largest advertiser in the country).
The first cracks. The first cracks in the BanInter façade appeared last year. Last September, a scandal showed that Colonel Pedro "Pete" Goico (a powerful member of President Hipólito Mejía's staff) and two other military officers had run up US$2m on a credit card issued by BanInter. Although Goico was arrested, BanInter dropped the charges and Goico was promoted.
The Goico case was just the tip of the iceberg. According to Báez himself, he had most of the top brass, the supreme court and leading politicians on his payroll. He is reckoned to have spent US$75m on payments to officials.
Belated. The Goico scandal alerted the central bank to the fact that something was going on. It saw that the bank had liquidity problems and put US$300m in pesos into the bank. The central bank's strategy was to hope that a buyer could be found.
The only bank interested, Banco del Progreso, took one look at the books and fled. What the banking superintendency and the central bank had failed to pick up was that BanInter was running two sets of books. Báez's version of double entry bookkeeping hid a banking operation which transferred legitimate deposits into various secret accounts.
BanInter's Cayman Islands operation was supposed to have US$152m in deposits from wealthy Dominicans, but this money was spirited away. Given that many of these deposits have not been claimed since the collapse of the bank, questions have been raised by both US and Dominican authorities on the legitimacy of those funds.
Damage. The fraud has caused real economic damage. The halving of the peso so far this year is due to BanInter erasing from its books, from January to March 2003, nearly US$680m in bad loans. Essentially, BanInter was simply allowed to create this money.
All in all, the sum of BanInter's fraud is US$2.2bn. This is equivalent to two-thirds of the national budget and 15% of the annual gross domestic product. The cost of the fraud has not only reversed the country's steady economic growth (the country's economic growth rate in 2002 was 4%, and is expected to be flat this year), but has virtually halted imports.
Electricity: This freeze on imports has hit the electricity industry hard. Gas and oil imports have halted, compounding problems already created by the devaluation and a structural shortage of power and fixed prices.The government fixed electricity prices in February, when the peso was still at RD$24.7 to the dollar.
The generating companies are unwilling to pay dollars for fuel when they are only allowed to supply power at a loss. This problem has been multiplied by the government's traditional reluctance to pay its bills promptly. The distribution companies say that the government owes them US$20m. The problems are threatening the project that could solve the structural supply problem. This is the 300MW Cogentrix project. Until then, more riots about power cuts are likely.
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