Journal of Latin American Studies



Exchange Rates, Monetary Policy, and Interest Rates in the Dominican Republic during the 1990s Boom and New Millennium Crisis 1


JOSÉ R. SÁNCHEZ-FUNG a1
a1 School of Economics, Kingston University, UK.

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Abstract

This article gives an account of the developments in the Dominican Republic's economy from the 1990s boom to the crisis of the new millennium, focusing on the monetary and exchange rate dynamics behind that transition. It is argued that the liberalisation of interest rates in the 1990s, together with an appreciated real exchange rate and weak bank supervision, led to the dollarisation of the banking system. These and other structural imbalances exacerbated the impact of a series of adverse shocks on the economy at the beginning of the millennium, including a banking crisis costing approximately 20 per cent of gross domestic product in 2003.

(Published Online November 3 2005)



Footnotes

1 An earlier version of this article was presented as a paper at the conference From ‘Miracle’ to Crisis to …: Debating the Future of the Dominican Economy, held on 26 June 2004 at Baruch College, City University of New York (CUNY). I thank Héctor Cordero-Guzmán and Ramona Hernández for the invitation and financial support to participate in this event. I also thank, among others, Paul Beckerman and an anonymous referee of this journal for useful comments and suggestions on previous versions of the manuscript. At the time of writing, the author was Director of the Research Department, Central Bank of the Dominican Republic. However, the views expressed here are the author's, and do not necessarily reflect those of the Central Bank of the Dominican Republic or its Monetary Board.