Dominican Republic and Haiti: Country Studies

Dominican Republic and Haiti: Country Studies
Without changing the BCRD's basic functions as the country's
central bank, a banking reform law in 1992 reduced the
number of financial institutions. Instead, the law created
"multi-banks," which would specialize in offering a complete
range of services. The consolidation was effected by merging
commercial and development banks with mortgage or savings
banks. In the late 1990s, the Dominican Republic had fifteen
commercial banks, of which one, the Banco de Reservas, was
state-owned, and five were foreign-owned: the United States
Chase Manhattan Bank and Citibank, Canada's Bank of Nova
Scotia, and Spain's Banco Espahol de Credito and Banco
Santander. The foreign investment law, which was passed in
September 1997, opens up the banking sector to other potential
foreign participants, although it stipulates that insurance
agencies remain under majority Dominican ownership. In
addition, seven development banks provide loans for housing,
agriculture, and other investments.
Government Role
The role of the BCRD (an entity under the President's con-
in managing the country's domestic monetary policy and
trol)
dealing with pressures on the exchange rate is only one aspect
of the government's traditional tight grip on the economy. Its
interventionist approach is also evident in its repeated efforts
to restrain inflation. But the disruptive nature and abrupt
changes in governmental economic policy have contributed to
sharp fluctuations in the inflation rate. To cite one example:
lax fiscal and monetary policies caused inflation to rise from an
average of approximately 6 percent in 1983 to 38 percent by
1985 to an average of 59.5 percent in 1990. An abrupt tightening
of monetary policy resulted in a sharp inflation rate drop to
4.5 percent in 1992, but accelerated spending prior to presidential
elections caused the rate to rise to 12.5 percent in 1995.
That rise was brought down to 5.4 percent a year later, however,
when the BCRD introduced tight monetary restraints. Rising
food prices in 1997 again reversed the trend, raising the rate to
almost 10 percent and leading to street demonstrations and to
the imposition of government price controls. The business sector
immediately accused the government of taking this restrictive
measure strictly for political reasons related to elections. In
imposing these controls on such basic goods as rice, milk,
chicken, and cement, however, the administration has acknowl-
120